Future of state's economy is tied to outcome of war

January 18, 1991|By Jon Morgan | Jon Morgan,Evening Sun Staff Ross Hetrick contributed to this story.

After being tossed for months in a sea of uncertainty, Maryland's economy could sink or swim with the fortunes of the U.S.-led war effort in the Persian Gulf.

A quick, decisive victory would probably help reverse the state's rising joblessness and slumping home sales and boost consumer confidence, according to economic experts.

But a military setback, or a protracted desert dispute, could depress an already bad situation, they said.

"It depends on how the war plays out," said Charles W. McMillion, senior fellow with the Institute for Policy Studies at Johns Hopkins University.

The most immediate impact for consumers will likely be at the gas pump, where fuel prices fall on good news and rise on bad news.

Oil prices had leveled off at noon today at $20.85 after opening $1 higher on the New York Mercantile Exchange in the wake of Iraq's missile attack on Israel.

Refined petroleum products also showed slight rebounds in New York after falling dramatically yesterday.

Home heating oil was up 2.79 cents at 64.75 cents a gallon on contracts for delivery in February, while unleaded gasoline for next-month delivery was up .31 cent at 60.60 cents a gallon.

But traders today were left wondering where crude would move next. They said recent events have shown that the oil market is perhaps the world's most volatile, and it will likely stay that way.

President Bush yesterday announced the sale of some oil from the nation's strategic petroleum reserves, and oil companies took steps to reassure the public that prices would not rise.

The U.S. stock market today responded with a mixed performance, with the Dow Jones average experiencing several

ups and downs throughout the morning.

At 1 p.m. the Dow Jones industrial average had moved ahead 6.44 points, to 2,629.95.

On the Tokyo stock market today, prices soared in the first 10 minutes of trading, then plunged as soon as traders received word of the Iraqi attack on Israel.

Yesterday's rise on the New York Stock Exchange was 114 points as measured by the Dow Jones industrial average.

The relief that the U.S. had taken action and the optimism over the initial reports had fueled yesterday's market, according to W. Talbot Daley, vice president-market analyst for Legg Mason Inc., a Baltimore-based stock brokerage firm.

But that euphoria has evaporated with the Iraqi missile attacks on Israel last night and video tapes of Baghdad's air defense, Daley said. "The realization that this is not going to be a three-day war has settled into the market," he said.

Now there is a "tug-of-war" in the stock market between the good news bulls and the bears, who are concerned about a long, drawn-out conflict, Daley said.

He said there has been the fear that the introduction of Israel into the war might weaken the U.S. coalition with the Arab countries.

But reports that Israel was holding back on retaliation have muted those concerns so far, Daley said.

The market is also susceptible to rumors about the war, he said. For instance, today there were unsubstantiated rumors that Hussein had been killed and his family had fled Iraq, Daley said.

H. James Smith 3rd, vice president and investment officer at the Baltimore office of Wheat First Securities of Richmond, agreed that the bloom is off the stock market rose and it may be very volatile in the next few weeks.

"People were getting a little ahead of themselves, thinking it would be a quick and easy war," he said. "In a nutshell, reality is setting in," Smith said.

He also warned that the market could be very volatile in coming weeks, depending on the news from the war. "It's just as easy for it to go down 100 points as to go up 100," Smith said.

For his part Smith was not buying yesterday, but selling, taking advantage of the higher price for previously poorly performing stocks. "I was cutting out the dogs," he said.

McMillion, with Hopkins, also predicted that a fast allied victory would boost the economy. But if Iraq surprises the world with a powerful counter attack, that could shock the economy, he said.

Maryland's massive defense industry would likely not feel the impact either way very soon. Most of the military contractors in the state are clustered in the high-technology electronic and aerospace sectors.

It is unlikely that this type of equipment would need replacement as quickly as tanks and trucks, for example, he said.

"If the war is over quickly it will really be a shot in the arm. Everybody's been so depressed," McMillion said.

What the experts say

"If the war is over quickly it will really be a shot in the arm. Everybody's been so depressed."

-- Charles W. McMillion, senior fellow,

Institute for Policy Studies at Johns Hopkins University

"It [the market] likes the fact that something happened. [But] if we get into a land war and it gets messy, the market doesn't like that."

-- Robert S. Killebrew Jr., managing director, Alex. Brown Inc.

"It [the bolstering of consumer confidence] would not be immediate. There is still employment loss in the state."

Pradeep Ganguly, economist,

state Department of Economic and Employment Development

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