What will 1997 bring for the economies of Maryland and the nation? Jay Hancock, The Sun's economics writer, interviewed three experts to find out. They are Patrick Arnold, director of Maryland's Office of Labor Market Analysis and Information; Michael Conte, director of the Regional Economic Studies Institute at Towson State University; and Mark Zandi, chief economist with Regional Financial Associates, an economic forecasting firm in West Chester, Pa.
Q. Let's start with the nation. What will the final figures show for the country's economy in 1996, and what are you forecasting for 1997?
Zandi: For 1996, we're expecting real growth in the gross domestic product of 2.3 percent, and for 1997 we expect growth of 2.5 percent.
Conte: All the indications are that for 1996, we will have wound up with real GDP growth of 2.4 percent.
And that's really pretty good, given that the watchword at this time last year and in December of 1995 was that 1996 was going to be a recession year.
Q. Can you put that in perspective? How does 2.3, 2.4 percent compare with history?
Zandi: In the '90s, 1994 was the strongest year for the country, with growth of 3.5 percent. Ninety-one was the weakest. It was minus 1 percent.
Conte: 2.4 percent is nothing to write home about in one sense because prior recoveries or expansions have seen GDP growth on average in early to middle stages of 3 and 5 percent. On the other hand, it is remarkable in light of the fact that we are not spilling blood with unsecured debt, junk bonds, like we were in the '80s. We're not fighting a war, as we were in the '60s. And we're not building a huge infrastructure of highways as we were in the '50s. Those factors drove past expansions. In that light, I think 2.4 percent is much better than it sounds on the surface. It's real, solid, sustainable growth.
Q. Sustainable through 1997?
Conte: There's a mixed bag of views out there. A lot of people in the auto industry think that auto sales are going to go down this year. There has been a lot of pessimistic talk about lapsing into a recession. But our leading index is showing nothing but gain. Because we don't think it's going to be extraordinary, we come out with a forecast in the 2.5 to 3 percent real growth range.
Q. What about Maryland? We've lagged the nation all during the 1990s. Will we catch up this year?
Arnold: Maryland has for a long time, and correctly, been described as a microcosm of the United States. But we do have our own economic personality. The federal cutbacks were particularly hurting Maryland in recent years, and I think we experienced the recession [in 1991] differently, in that it was deeper here than it was for many states, and the recovery was slower. But having experienced these few years of slow growth, I think that distinctions between Maryland's performance and that the United States are narrowing.
Q. How will Maryland's 1996 look when the final numbers are out, and what's ahead for this year?
Zandi: Probably the best measurement of economic activity regionally is employment, and for the state, we expect employment growth in '97 of almost 1 percent, which is somewhat better than the growth we saw in 1996, which is growth of a little over half a percent.
Q. Many people, including Pat Arnold, whose office collects the data, expect the '96 employment results to be revised upward. Do you?
Zandi: I do expect them to be revised upward. It's not going to look as weak when we get to the final data.
Q. What will the final Maryland result show?
Zandi: It might be as high as 1 percent. Growth might be double what we're seeing in the official data.
Conte: We expect 1.7 percent employment growth for Maryland in 1996 and 2.0, basically, for 1997.
Arnold: We're looking for about 1.5 percent growth in Maryland's private sector in 1996 over 1995. That's about 26,000 jobs. I've focused on the private sector because government has already shrunk, and it's subject to more variation that I believe is seasonal.
Q. What if government is added in? Those jobs are part of the economy, too.
Arnold: That gives us a total increase of about 29,000 jobs for 1996, so there's a good 2,500 to 3,000 jobs in government that will be added. That's total percentage growth of only 1.2 percent because government employment is growing relatively more slowly than private-sector employment.
Q. How will employment growth look in 1997?
Arnold: We expect employment growth of 1.6 percent this year )) both in the private sector and throughout the economy. That would be about 33,600 total jobs.
Q. What sectors are going to drive the growth?
Conte: We see construction coming back pretty strong. As you saw nationally, home sales have been up, and in Maryland home sales have been up considerably, resulting from increased stability in employment and low interest rates.
The construction forecast is really one of significant growth in that we're looking for an increase above 3 percent, and then even higher going into the following year. Most of that is expected to occur in building construction, as opposed to public infrastructure and the like. And most of the building is driven by residential.
Arnold: Our outlook on housing is upbeat. We do see above-average growth in construction, and it's not just residential construction. It's also highway and road construction and maintenance.
Q. What about commercial construction?
Zandi: That's another sector that dragged on the economy earlier in the decade that now may begin to add a little bit of growth. We have seen some improvements in the commercial market for retail space, warehousing and we may even see some new office buildings in some of the suburban D.C. area and suburban Baltimore area.
Q. What other kinds of businesses will help Maryland this year?
Zandi: Maryland has a relatively bright high-tech sector, and I speak of that fairly broadly to include biotech, computer peripherals and hardware, engineering and management services and telecommunications services. These are industries that require highly trained and educated individuals, and that's where Maryland's comparative advantage lies.
The other sector that is supporting growth is the transportation and distribution sector, related to the port and airport and Maryland's central location in a very large economic area.
Conte: The single biggest bright spot in transportation is freight activity through the airport, through BWI, which grew 3.9 percent in the third quarter alone and 17.9 percent over the last four quarters.
We're outdistancing, in terms of percentage growth, Dulles airport for the first time ever. That's reflected by 19 new expansions or relocations into the BWI business district, and it shows what a large payoff there is from a thoughtful investment process, real estate development and infrastructure development, and that's what's pretty much lacking in most other parts of the state. This also highlights the benefits of having good ports and airports. It's not necessarily the employment growth at those facilities, but in port-dependent activities.
Q. More of that freight is going overseas. How much will rising exports help Maryland?
Arnold: The appetite of foreign countries for U.S. goods has rarely been stronger, and every forecast I've seen calls for that to continue. What this does is acts as a safety net, or counterbalance, so if our domestic economy does turn down, we will still have strength in exports, and Maryland has at least a modest amount of export activity. And if both exports and the domestic economy are going up, that could cause us to experience more rapid growth in the later part of this decade.
Q. What about government? Is federal downsizing still a threat?
Conte: Interestingly, federal government employment in Maryland only declined by slightly over a quarter percent last year. This is in spite of the fact that many analysts were saying that the bottom was falling out, and we always thought that was excessive worry. We see a continued tightening in federal government with implementation of outsourcing, downsizing, reinvention, whatever word you want to use but at a much lower rate than is happening elsewhere in the country.
Zandi: I do think there will be a point between now and the end of the decade that the state might have to face up to some significant [federal] cutting. The cuts are going to look less severe this year, but there will still be some, and we'll probably see more as we move toward the end of the decade.
Q. The service sector has been Maryland's strongest for many years. Will that continue?
Arnold: What we're saying is that employment growth is going to occur primarily in services, in trade. And within services, business services will be showing really strong growth.
Q. What are Maryland's weak spots?
Arnold: Manufacturing. Financing, insurance and real estate. We're seeing weakness in the communications sector. [See page 7k] There have been a lot of cuts recently, and that trend, I think, is going to continue.
In manufacturing, the good news is that the reductions have essentially occurred and that we're not going to have the precipitous declines that we had in the mid-'80s and '90s. But the trend is still down.
Q. Will we lose more banking jobs?
Conte: One real good story for Maryland is in the category of 'Oh how good it feels when you stop hitting your head against the wall.' There has been a reduction in downsizing in the banking industry, which was a huge problem for us. Secondly, in electric utilities, from the point of view of the employment picture, we see that stabilizing.
Q. Christmas turned out to be patchy. Consumer debt is huge. Bankruptcies keep setting records. What do you expect from consumers this year?
Zandi: I think household debt is going to be much less pronounced as we move through the year. One factor is lenders have really tightened their standards significantly. That's going to reap benefits in the form of lower delinquencies and filings. And households are cutting back on the amount of debt they're taking on.
Q. They'll really cut back if the Fed raises short-term interest rates to forestall inflation. Or if the bond market bumps up rates on its own. How much of a danger is that?
Conte: It's a major question mark. I would say it's the major question mark. And I think I know the answer to the question, which is, I think they're going to do it.
Q. You think the Fed is going to tighten?
Q. Was that factored into your forecast?
The forecast that we made was based on the notion that they wouldn't do that. If they do, if they tighten, that could really jeopardize the expansion. But we don't have a specific numerical forecast associated with that scenario.
Zandi: I think it'll be a relatively stable interest rate environment, although I think the risks are for higher rates rather than for lower rates. I think we'll experience bouts of higher interest throughout the year, but when it's all said and done, I think it will be fairly stable.
Q. Should I refinance my mortgage or buy a house?
Zandi: If rates get close to 7.5 percent on a fixed mortgage, I would buy. I wouldn't wait for anything lower than that.
Q. How will the Baltimore region perform in 1997?
Conte: We see 1.5 percent employment growth for the Baltimore metro area this year. Baltimore City will see slow growth, but positive. The suburbs will grow at the same rate as the rest of the state, about 2 percent.
Q. Baltimore City has been losing jobs all decade. Adding a few this year would be a big step.
Conte: In Baltimore City we're seeing the beginnings of a pulse again in residential purchasing activity. And Baltimore City and Maryland generally has twice the rate of growth in museums and cultural establishment employment. I think Baltimore City is on a real cusp in that regard. Obviously, the Ravens Stadium is going to have a good payoff. The continued buildout east from the Inner Harbor is going on again, linking the Inner Harbor with Fells Point and Canton and going even farther. That could become a real hub of sustainable business development.
Pub date: 01/19/97