Manager's outlook is 'conservatively upbeat'

THE BALTIMORE SUN

Steven M. Pickett has just minted Maryland's economic motto for the year.

"Conservatively upbeat," the Chubb Group vice president said, is the outlook not only for his own insurance business but for his customers and perhaps the entire Maryland economy.

"I'll label it steady expansion," said Pickett, manager of Chubb's Baltimore branch, which sells policies to numerous regional businesses. "Everyone is concerned and focused on improving" and beating competitors, he said. But, he added, ""we've seen expansion in all the business segments that are visible in the area. And our business is reflective of that."

Economists support Pickett's assessment, though some stress the upbeat, while others focus on the conservative, cautionary notes.

At worse, they expect Maryland to match last year's record of slow, steady economic growth - and some argue about exactly how moderate that growth was. The most optimistic believe that Maryland could add 40,000 jobs this year, matching its 1994 performance, its best yearly employment growth of the decade.

"Slow growth that is turning solid" is how Patrick Arnold, director of Maryland's Office of Labor Market Analysis and Information, describes it. Arnold believes last year's results will show that state employment grew by 1.2 percent, and he predicts growth for this year could be 1.6 percent - about 34,000 jobs.

Michael Conte, director of the Regional Economic Studies Institute at Towson State University, is one forecaster who expects at least 40,000 new jobs this year on top of the 2.2 million or so Maryland has now. He's predicting 2.0 percent employment growth - unless inflation fears cause the Federal Reserve to raise short-term interest rates and cool the economy.

"The rap that we've had for the last five years is that we've been underperforming" the national economy, Conte said. Now, he added, Maryland is "not only catching up with the nation but, in some respects, surpassing."

Mind, the nation's economy is not expected to cause Carl Lewis any jealousy this year.

Most analysts expect a replay of last year, when gross domestic product, the total output of the country's goods and services, expanded by a moderate 2.5 percent or so. That's far from being a recession, when output shrinks. But it also looks skinny next to, say, 1994's national growth of 3.4 percent or 1984's growth of 6.8 percent.

Many analysts do not expect Maryland to match the nation this year, although many also believe that the gap between the two will shrink.

For Maryland, "this will be the seventh lean year after seven really fat years" from 1983 to 1989, said Charles McMillion, chief economist for MBG Information Services, a Washington forecasting and business information firm. Actually, 1996 was the seventh year of the slump that began in 1990, so perhaps Maryland can start 1997 free from the burden of biblical precedent.

Still, McMillion expects job growth this year of less than 1 percent, and the main reason is "that there is no engine driving growth in the region," he said, no federal spending spree as in the 1980s, no interest-rate decline like in 1994.

That's not necessarily a bad thing, say other analysts. The lack of a blockbuster catalyst means that the fall will be less dramatic if the stimulus disappears.

"One of the characterizations of the current economy is that the variation in performance is going to be much more pronounced than it has been in our recent history. That's not only in Maryland, but it's pretty much across the country," said Mark Zandi, chief economist with Regional Financial Associates Inc. in West Chester, Pa. "So this economy is really quite well balanced, which is one of the reasons for long-term optimism."

And if Maryland lacks all-star industries these days, it no longer has closet cases, either.

Federal employment and contracting seem to be steadying after an uncertain 1996, although analysts are concerned about federal spending in 1998 and beyond. Maryland's remaining factories have modernized and thinned to fighting weight, making them far less vulnerable to new layoffs even if another recession hits, economists said.

"We've seen the bulk of the heavy layoffs in manufacturing, the defense industry and steel," said Mark Vitner, an economist with First Union Corp., who follows Maryland. "There simply aren't that many more jobs that can be lost in these industries. On the other hand, there's strong activity in biotechnology, data processing and engineering."

But not strong enough to rival the 1980s, when more than 400,000 new jobs landed in Maryland. Even 1983 - the decade's worst year not counting the 1981-1982 recession - yielded 2.4 percent employment growth.

Exports are one reason economists are optimistic. Overseas shipments of goods and services are rising in Maryland and nationwide, and Arnold and other analysts see exports as an increasingly effective backup engine, kicking in, maybe, if the domestic economy flags.

But as always, a set of 49 other key trading partners will have a much bigger effect on how Maryland does this year than anything that happens in Canada or Mexico. Maryland is closely tethered to economies in the other states, and national economic waves will wash up here.

One to watch for is interest rates.

Odds are growing, many experts believe, that the Federal Reserve will soon tighten the country's money supply and raise short-term interest rates to forestall inflation.

Growing economies and low unemployment often fuel higher prices, and recent evidence, such as the 262,000 new jobs that the Labor Department counted for the country in December, could prompt the Fed to move. But the case is nowhere near clear cut, as shown by last week's seesawing bond market, which tries to divine Fed action.

The problem is that inflation isn't behaving by the book. This would be the seventh year of the country's economic expansion, and sharply rising prices were supposed to have kicked in long ago.

They haven't. Forces such as overseas competition and waning union power have declawed inflation, many economists say. But it isn't clear whether Alan Greenspan, the Fed chairman, is listening to them.

A boost in short-term interest rates by the Fed would ""really jeopardize the expansion," Conte said - to the point that if the Fed moves, Conte calls off his forecast of 2.0 percent Maryland job growth.

The Fed ought to ""do the right thing," Conte added, ""which is lay low and let the economy go at its own natural course."

One of the first sectors to be hit by a rate increase would be construction, which in Maryland has been reviving after a lackluster first half of the decade. But some analysts believe that the damage would be limited.

Public works projects such as the Ravens football stadium in Baltimore will help, distribution centers keep rising from Harford to Anne Arundel counties, and the stock of unused office space in suburban Baltimore and elsewhere seems low enough to ensure some activity in that sector even if rates rise some.

Anthony Deering, chief executive of the Columbia-based Rouse Co., predicts "a pretty strong year for commercial real estate across the board in the Baltimore area."

Last year, residential construction had a good year, but analysts disagree on how long that will last this year. Conte expects ""a great spring." Zandi doesn't.

"A lot of pent-up demand got released in 1996," Zandi said. ""We saw a lot of homes sold, so there's a lot less pent-up demand out there to be unleashed in 1997."

Other growing trades this year should include goods distribution, computer services, engineering services and health care, say economists and industry players. Hospitals aren't adding people, but health insurance companies, nursing services and other businesses are.

"If I were to advise somebody who didn't have the credentials but was interested in going back to school, I would say look at health care," said Robert T. DeFilippis, president and chief executive officer of the Chesapeake Group, a career firm with offices in Maryland.

Federal government employment isn't growing, but payrolls in local governments are, as school districts increase their staffs to serve the baby-boom echo. Adult education is growing, too, Arnold said.

The booming stock market has pulled Maryland up with it, and so long as the Dow doesn't dive this year the state should keep adding positions in investment banking, brokering, financial analysis and the like. For example, T. Rowe Price Associates, the Baltimore-based mutual-fund company, added 450 jobs last year.

And, of course, companies that sell products and services to all these sectors, such as Chubb Group insurance, will do well if they do.

"If you look at the economy overall and in the Baltimore area, the people who are taking advantage of it are in health care, wholesale trade, the transportation industry, some manufacturing," said Pickett, the Chubb executive. ""Technology, tourism, financial services . . .

"Many of us are in the same boat. We're all trying to become more efficient, adjust to the economy, the competition and all the separate business trends. We're all engaged."

And conservatively upbeat.

Pub date: 01/19/97

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