A 'very good' year so far, say experts Good news: Maryland is feeling the effects of the booming national economy. Some experts feel the state economy is at its highest point of the decade.; Maryland's Economy: First-quarter Report;

THE BALTIMORE SUN

A graph in last Sunday's Business section gave an incorrect figure for freight traffic at BWI Airport for the first quarter of 1997. The correct number is 77,316 pounds of freight.

The Sun regrets the errors.

All decade, Maryland and the Northeast have lagged near the end of the economic train. But the national economy has hitched up another locomotive this year, jammed down the throttle and wrenched acceleration even from the caboose.

"Clearly, right now, the Maryland economy is as strong as it's been this decade," said Mike Funk, an economist who follows the state for the Regional Economic Studies Institute at Towson State University.

Just 4.5 percent of Maryland's work force was unemployed in March -- as low a seasonally adjusted jobless rate as the state has seen since the early 1990s. Sales tax revenue for the first quarter soared by 7.3 percent compared with the same period last year, bolstering the state's budget and lubricating a big aid package for Baltimore's schools.

The best national output growth in nearly a decade for the first quarter surely has helped; the gross domestic product expanded at an annual rate of 5.6 percent.

But local factors contributed, too. Charged up by the construction of two football stadiums, by a huge demand for business computer services and by more-confident consumers, Maryland had 17,000 more jobs in March than it did in December, after adjustments for seasonal rhythms.

That's an annual employment growth rate of 3 percent -- better than the nation's job expansion, in fact -- from a survey that often understates Maryland's performance.

"The overall picture is good. It's very good," said Margaret M. Murphy, vice president in the Baltimore branch of the Federal Reserve Bank of Richmond, Va. "I feel really positive about where we are right now."

Few people expect 3 percent job growth for all of 1997,however. (Last year Maryland jobs grew 1.3 percent.) And many signs, including record bankruptcy rates and reports of modest growth from some companies, suggest that Maryland's economy is still far from robust.

"Revenue seems to be getting a little better -- not a whole lot," said Jerry Hoppe, president of Metal Fabrications, a small Baltimore firm that makes metal stairs and railings. "It isn't like it was 10 years ago. Ten years ago, it was big money. Today everyone is getting very competitive."

Federal spending in Maryland also continues despite pressure. And whatever overall economic improvement this year is bringing could end if the Federal Reserve keeps raising interest rates.

"I think '97 is likely to be better than '96, but the state really needs to focus attention on procurement and federal spending," said Charles McMillion, chief economist for MBG Information Services, a Washington economics research firm. "That continues to be a huge part of its economy, and it's doing poorly."

Bank lending is fluid

Even so, portents of growth abound. Many businesses are adjusting their budgets upward. Bank lending is fluid.

Nearly eight out of 10 Maryland companies expected sales increases this year, according to a recent survey by the University of Baltimore. More than half planned to add jobs, and nearly one in seven believed that employment would "significantly increase."

"We are very busy," said Thomas S. Bray, chief operating officer of Questicon Inc., a Towson software and computer services company. "I'm in the process of negotiating three contracts as we speak, and we're in the middle of a fairly large job right now, and we're looking at probably doubling last year's volume in sales."

Perhaps the most salient aspect of Maryland's economy in the first quarter was its contrast with the same period of a year ago. This year was "a major improvement" compared with the first three months of 1996, said Metal Fabrications' Hoppe.

Last winter, big snowstorms, a government shutdown and protracted federal budget uncertainties gave Maryland a mini-recession, a short-term loss of 30,000 jobs that exerted a drag on the rest of the year.

By contrast, the winter of 1997 was mild. The government kept operating. And consumers boosted their spending momentum.

State collections of the consumer sales tax -- a measure that excludes most business-to-business purchases -- rose by just 2 percent in the fourth-quarter report, which actually tracks spending in September through November, compared with the same period in 1995. By contrast, Maryland consumers boosted spending by 6.8 percent in the report for December through February.

"It seems to be kicking into real high gear," said Maryland Gov. Parris N. Glendening. "We are in fact getting very good paying jobs here. When you pull all the things together, it bodes well for the economy."

To be sure, Maryland's first quarter this year looks good in large measure because last year's was so bad. But analysts see evidence that the growth has legs.

Employment ads booming

Help-wanted ads are booming. The Sun's employment classified advertising lineage increased by 15 percent in the first quarter to its highest level in at least four years. It continued to climb in April.

Baltimore Gas and Electric Company installed 3,389 new commercial electrical meters last year -- up 6 percent from 1995 and 67 percent from 1994. Now many of the business establishments using those meters seem to be adding to their payrolls.

"Business has been great," said Chuck Sudina, president of Sudina Search Inc., a Timonium firm that specializes in recruiting workers for information systems, accounting and finance. "It's the best market I've ever seen for information systems."

Much of the demand for computer pros, many analysts say, is fueled by the "Year 2000" problem of getting computers with only two digits programmed into their dating systems to run properly after 1999.

Year-2000 fixes for certain kinds of systems are Questicon's niche, and the 10-person outfit intends to have "at least" a dozen more contract employees on board by the end of the year, said Timothy Bowden, its chief executive.

The right people can command high salaries.

L "The prices are going up," Bowden said. "It's unbelievable."

That's a concern for many economists, who worry that a tight labor market will drive employers into bidding wars for workers and pass the higher costs on by raising prices, driving up inflation. Employers in places with especially low unemployment rates -- such as Howard County at 2.7 percent -- say they have had greater difficulty finding workers for months.

But not all of them have that problem, said the Fed's Murphy. Some companies in Howard County demonstrate the paradox of the current U.S. economy, she said, in which strong growth is occurring without proportionately strong inflation pressures.

'Sort of puzzled'

"They are still able to fill their jobs and they are not having to hike their prices," she said. "And they are sort of puzzled about why not."

Other data reinforce the notion of a stronger Maryland economy. The "Beige Book" for the Fed's Richmond District, which includes Maryland, last week reported strong growth "balanced across nearly all sectors."

And Maryland business failures fell by 24 percent in the first quarter to the lowest level since 1994, according to Dun & Bradstreet.

But not all is well.

Many of Maryland's new jobs aren't permanent, although government data banks make it hard to tell exactly how many.

"There is, absolutely, an increase in the use of temporary workers," Murphy said, "which is sort of a new kind of hedge" for companies.

Maryland's total bankruptcies soared by 46 percent in the first quarter, doubling since 1994 and driven mainly by overextended consumers seeking a fresh start.

That's cause for concern, and McMillion called it "a huge problem." Many economists, however, attribute the jump to a decline in the stigma of seeking bankruptcy protection, not to a significant deterioration in consumers' financial position.

Maryland's new-car sales for 1997's first three months stayed steady with the quarter a year ago, at 64,000. But that's still 12 percent below the levels of two years ago. Higher mortgage rates have hurt home sales a little, also.

The state's total after-tax personal income -- a close approximation of its total economic output -- rose by only 3.5 percent last year. Subtract about 3 percent for inflation, and that leaves real growth of only 0.5 percent, ranking Maryland 46th in ++ the country.

Also, the value of federal contracting declined in metro Baltimore last year by 15 percent, according to MBG's McMillion, to $2.4 billion, although it appeared to start recovering in the fourth quarter.

First-quarter results for state income and federal contracts aren't available yet, but some analysts expect them to perk up, given the upturn in tax collections and jobs so far this year.

Another rate rise?

But like the rest of the country, Maryland business people and consumers are closely watching the Fed, the country's central bank. The Fed has boosted short-term interest rates by a quarter of a percentage point this year in an attempt to slow growth and relieve inflationary pressure.

Many economists expect the Fed to raise rates again when its key policy committee next meets May 20. And even if it doesn't, the U.S. economy shows some early signs of slowing, which could put the brake on Maryland, too.

"The only worry" in Maryland "is that there seems to be some slowing in employment growth nationally," Towson State's Funk said. "If the U.S. economy is indeed slowing down to some extent, I think you'll see the Maryland economy follow."

Meanwhile, at the 11-person welding shop of Metal Fabrications, "this is our busy season," said Hoppe. Things aren't booming, and the company has added only one person in the last year. But four years ago, when he founded Metal Fabrications, Hoppe said, "definitely business was slower."

Pub Date: 5/11/97

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