An economist warned Maryland lawmakers on Tuesday that a recession is coming and they should prepare for it.
Financial indicators are pointing toward a recession beginning in mid-2020, Dan White, director of government consulting and fiscal policy research for Moody’s Analytics, told members of the Senate’s Budget and Taxation Committee.
And it’s possible that a recession could come sooner if the partial government shutdown continues.
“If we get to March without some kind of agreement, it will be enough to cause a recession in the United States, and Maryland and Virginia would be squarely at the epicenter,” White said.
Even if the shutdown wraps up within the next few weeks, limiting the economic damage, the nation is still headed for a probable recession starting next year, White said.
He cited indicators such as low unemployment, which will lead to rising wages and inflation.
And White also discussed the “yield curve,” which is the difference between short-term and long-term interest rates. When long-term interest rates are similar or lower than short-term interest rates, it’s more difficult for banks to make money and serves as a reliable signal that a recession could be looming, he said.
It’s also been about a decade since the Great Recession began.
“Ten years is a long time for us to go without screwing something up,” White said.
Senators asked White how they can prepare for a recession.
“The simplest solution and the most effective solution seems to be to make sure you have enough in your rainy day fund to get through the next recession,” White said.
He said a rainy day fund should have clear guidelines for when money can be withdrawn and what purposes it can be used for.
Secondly, he suggested that lawmakers be cautious in adding new spending to the state budget that might not be sustainable in a recession.
Gov. Larry Hogan will introduce his proposed budget Friday, and some lawmakers are looking ahead to eventually increasing state spending on public education.
A commission is reviewing options for improving public education through spending on initiatives such as expanded pre-kindergarten, improved teacher training and increasing teacher salaries. While those recommendations are not final, they could carry a multibillion-dollar price tag.
Lawmakers are expected to spend at least $200 million extra on education this year, some of it having been set aside last year.
White did offer one bright spot: The next recession might be what’s called a “growth recession.”
That’s when the economy is actually still growing, but the slowdown in the pace of growth makes it feel like a recession. The effects of a growth recession in Maryland would be milder, White said, as it is “a very Wall Street recession, less of a Main Street recession, like it was in 2008.”