The economies of Maryland and the nation will likely struggle in the first half of next year, but then should perk up as businesses begin increasing investment in their operations, an economist said yesterday.

Anirban Basu, senior economist at RESI Research & Consulting, Towson University's economics research arm, said corporations that have been slashing budgets will pump money into new computer systems and telecommunications equipment, giving the economy a boost in the second half of next year.

"Long term, I like where we are heading," Basu said in an interview after he addressed more than 200 people attending RESI's annual economic outlook conference in Baltimore.

But he warned that the first half of 2003 is "going to be pretty tough."

While Basu expects the economy to grow next year, he said it will likely face many of the same challenges that it is grappling with today.

Consumers, who have been the engine driving the economy, have curbed spending and are saving more money. As a result, sales of cars, furniture and home furnishings have fallen in the past two months, he said.

At the same time, home foreclosures are rising along with late payments on loans.

"They [consumers] are pulling back," he said. "The economy seems to be losing steam. Of course, this is the Christmas season, this means a lot."

In addition, both the United States and Maryland have been losing jobs since the year began. "The labor market doesn't seem to be recovering at all," Basu said. "We just don't see any signs of life here."

Basu expects Maryland's unemployment rate to rise to almost 5 percent in October, up from a seasonally adjusted 4 percent in September. "It looks as if the labor market in Maryland is getting weaker, not stronger," he said. He noted, however, that the state's unemployment rate is still low by historical standards.

The labor picture grew worse this week after toolmaker Black & Decker Corp. said Tuesday that it would close its Easton plant, slicing 1,300 jobs.

"It is devastating," Basu said.

Another problem facing the state and nation is growing budget deficits, he said. Maryland's deficit is projected to reach $1.8 billion next year and will likely force state agencies to cut their payrolls, Basu said.

He said Baltimore, which already has one of the highest unemployment rates in the state, will bear the brunt of the cutbacks because it has 36,000 state workers. "When they start cutting state jobs, a lot of that is going to happen in Baltimore City. Very bad news," Basu said.