Economic turnaround expected later this year

March 20, 1991|By David Conn | David Conn,Annapolis Bureau of The Sun

ANNAPOLIS -- Maryland's economy likely will begin to recover during the second half of the year as the nation begins to emerge from its worst economic slump in a decade, according to report released yesterday.

But the state's rebound will be slowed by a variety of national ills: high levels of consumer debt, continuing inflation concerns, high real interest rates and a lack of significant federal deficit reduction, according to researchers at the University of Maryland's economics department.

Those problems mean continued trouble for state officials trying to shape a budget for fiscal year 1992, which begins July 1.

"Because the national recovery is not pronounced until well into FY92, state tax revenue increases in FY92 will be approximately equal to the increases in FY91," said the report by Mahlon R. Straszheim, chairman of the university's economics department, and instructor Lorraine Sullivan Monaco.

Those 1991 increases were far below expected levels, which forced the ongoing struggle to cut almost $500 million from 1991's budget, and to trim almost $200 million from the 1992 budget.

The report sheds a new light on Maryland's service sector, which has been regarded as the state's strongest industry.

While other sectors, most prominently manufacturing, have been the decline for several years, the service sector had buoyed the state's economy until recently, according to the researchers.

The service industry is the largest segment of Maryland's economy, with 28 percent of the labor force. Wholesale and retail trades employ 25 percent of working Marylanders.

"Service employment growth in Maryland slowed to a 3.0 percent rate in 1989-90, a rate well below that in the rest of the nation [5.8 percent], and well below that in Maryland in the 1983-88 period [6.4 percent]," according to the report.

The good news in the report is reserved for Baltimore, which has managed to narrow the gap in employment growth compared with the rest of the state, Dr. Straszheim and Ms. Monaco reported.

"In 1987-88, Baltimore City's employment growth rates improved from earlier years, and only trailed the state slightly," the report stated.

"In 1989-90, this gap has been essentially eliminated," it continues. "Baltimore City's economic slowdown is less severe than for the state overall."

That unexpected strength has come primarily from construction finance and both health and non-health services, according to the economists. They expect a period of adjustment in the service sectors, after which "Maryland's long-term economic advantages will re-emerge during the recovery period."

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