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Maryland economy struts its stuff with another strong quarter

THE BALTIMORE SUN

Despite a few soft spots, the Maryland economy enjoyed another strong quarter during the second three months of the year. Leading the way were robust job gains, healthy consumer spending, record car sales and a hefty jump in contracts for homes.

"The second quarter was a very solid quarter," said Pradeep Ganguly, chief economist for the Maryland Department of Business and Economic Development. "It was almost as strong as the first quarter."

Among the quarter's highlights:

New contracts for homes rose statewide over the second quarter of 1999, even though settlements on earlier contracts slumped.

Maryland car dealers enjoyed their best quarter ever for vehicle sales.

State sales tax receipts from consumer spending posted a big gain, signifying health in the retail sector.

Manufacturing slowed - more so in the Baltimore area than statewide.

One of the biggest keys to a healthy economy is job growth: When consumers are working, they have money to spend - and the confidence to spend it. During the April-June quarter, Maryland enjoyed strong job growth, with an average of 2.45 million people employed - 3 percent more than the 2.39 million employed in the state during the second quarter of 1999.

Even with this rise in jobs, there was a slight uptick month-to-month in unemployment both in Baltimore and statewide - though unemployment for the quarter was still down from a year earlier. In Baltimore, the unemployment rate rose from 3.3 percent in April to 4.3 percent in June. Statewide, unemployment rose from 3 percent in April to 3.6 percent in June, matching last year's rate for that month.

The small increase in unemployment can be traced to several causes: New entrants to the work force - such as college graduates, or students on summer break - who hadn't been absorbed, and a gentle slowing in the growth rate of the Maryland economy, which is mirroring the slight slowdown in the pace of national growth engineered by the Federal Reserve.

This upshot of the still-strong job market was higher consumer spending: State consumer sales tax receipts jumped 9 percent during the second quarter.

"We are doing fine here," reported Mike Gaeta, store manager for Dick's Sporting Goods in Bel Air, who said his store is having an excellent year.

Consumer spending wasn't limited to smaller-ticket items such as running shoes, soccer balls and archery equipment - it extended to big-ticket items such as new cars and trucks. Sales of new vehicles in Maryland jumped 11 percent to an all-time record of 111,783 cars and trucks during the second quarter, bolstering an already strong year, said Peter Kitzmiller, president of the Maryland New Car and Truck Dealers Association.

Only two other times have Maryland dealers sold more than 100,000 vehicles in a quarter: They sold 100,277 in last year's second quarter and 103,782 in the third quarter of the year. Dealers sold 95,330 vehicles in the first three months of this year.

Sales of cars and trucks increased despite the double whammy of higher interest rates and rising gasoline prices and have continued brisk into the third quarter.

"The strong spring has continued right into summer," Kitzmiller said. "I think people think the economy is still good."

Kitzmiller is expecting the pace to continue. New models - once reserved for the fall months - now are rolled out year-round, and several, including a new Ford SUV, were unveiled over the summer. Car makers have still more new models behind the curtain for a fall debut - which should fan the flames of consumer interest even more, he said.

Higher interest rates have affected the housing sector, with both Baltimore and the state registering declines in the number of sales.

Second-quarter settlements dropped 3 percent in the Baltimore area and 2 percent statewide over the like stretch last year. However, the dollar value of new contracts signed statewide during the second quarter leaped 24 percent - from $714.4 million last year to $883.7 million this year.

"Business is great," said Bob Connelly, vice president for Cockeysville-based FNMC, formerly First National Mortgage Corp.

Marc Witman, a sales associate at the Greenspring office of Long & Foster, said the big jump in new contracts is more important than the slight year-over-year decline in home settlements. His logic: New contracts are a leading indicator, while settlements are a lagging indicator, because they are finished deals. The second-quarter dip in settlements was likely due to the rate increases enacted by the Fed, as well as the early-year sell-off in stocks, which temporarily doused buyers' confidence, Witman said.

Stocks settled down during the second quarter and interest rates retraced their steps. On June 1, a $100,000 mortgage with no points commanded an interest rate of 8.75 percent. By July 1, that same mortgage stood at 8.625 percent. It dropped to 8.5 percent by Aug. 1 and reached 8.375 percent by the first of this month, said FNMC's Connelly. And that decline has sparked demand: Long & Foster's Witman says strong sales have carried into the third quarter.

"I think you are going to find that July and August" boasted high sales, too, said Witman, the 1999 president of the Greater Baltimore Board of Realtors.

One problem that continues to trouble the local real estate scene is the shortage of nice houses on the market - at virtually all price levels, say both Connelly and Witman. That's helped drive up prices and may be keeping sales from being as strong as they might otherwise be.

Manufacturing, too, is feeling the economic slowdown. Local experts say growth has slowed more in the Baltimore area than statewide, though neither deceleration was precipitous. Average manufacturing hours - the measure of the typical production worker's work week - fell slightly in the area, though it rose statewide. However, weekly manufacturing pay - a way of gauging that industry's activity by looking at what production workers are netting in their paychecks - dropped in both Baltimore and in Maryland.

"I agree, locally, that we've seen some slowing," said Scott Macdonald, chief executive officer of Maryland Thermoform Inc., a plastic packaging and products manufacturer based in South Baltimore. "Several of the big guys here - I won't drop their names - must be listening to their shareholders [who want higher profits]. They are reducing their inventories and their overhead" by purchasing fewer goods at a time from local suppliers, such as Maryland Thermoform.

Outside Baltimore, however, business remains good, Macdonald said.

Millennium Inorganic Chemicals - the pigments and chemical maker that's based in Hunt Valley and has a plant at Hawkins Point - has seen parts of its business remain strong, while other pieces have slowed, said D. Arthur Seibel, the company's senior vice president and chief financial officer.

The weak euro - the currency unit of Western Europe that's lost one-quarter of its value since its January 1999 introduction - is really putting U.S. exporters at a disadvantage. The reason: As the euro falls, it is able to purchase less and less in the way of dollar-denominated goods - effectively serving as a price increase on U.S.-made goods. That's hurting the sales of U.S. manufacturers, and is one of the reasons U.S. factories are feeling some pain right now, Seibel said.

Even with that pain, however, it's nowhere near being time for the doomsayers to arrive, he said.

"We haven't seen any signs that there's going to be a recession," Seibel said. "The slowing we do see is very, very small. ... The market is still very strong."

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