Economy forecast rises -- again State seen perhaps reaching the bottom of the recession.

May 01, 1991|By Ross Hetrick | Ross Hetrick,Evening Sun Staff

Maryland's economy may be nearing the bottom of the recession and preparing to turn around, local experts predicted after reviewing the Index of Leading Indicators, released today.

The federal government's chief economic forecasting gauge rose 0.5 percent in March, its second consecutive monthly advance, the Commerce Department said today.

The increase in the March index followed a revised 1.2 percent gain in February, stronger than the 1.1 percent estimate announced earlier.

The February advance had ended a string of six losses stretching back to July, when the index was flat.

"They are telling us that we are still in a recession, but we are getting close to the trough," said Anthony J. Sulvetta, a managing director for FBW Investment Management. FBW is a subsidiary of Ferris, Baker Watts Inc., an investment banking firm in the Washington-Baltimore region.

Sulvetta said the information released today tends to verify that the nation should be heading out of the recession in mid- or late summer. Maryland's economy will follow the rest of the nation, he said.

Mark W. Meador, associate professor in the departments of economics and finance at Loyola College in Baltimore, was also optimistic about emerging from the recession. "We are not out of the woods yet, but there's light at the end of the tunnel," he said.

He was particularly encouraged by increases in such items as stock prices and consumer confidence, which he said show signs of a strengthening economy.

The Bush administration and some private analysts contend the recession will end during the current quarter. Others predict it will last until the second half of the year.

In any case, few economists expect a smooth transition.

The biggest source of strength in the March indicators came from an index measuring consumer confidence in the month following the Persian Gulf war. But surveys released yesterday showed consumer confidence fell back in April.

Another positive contributor to the March index was an increase in stock prices. But while the Dow Jones industrial average continued to rise in early April and closed above the 3,000 mark for the first time, it fell below the 2,900 level this week.

Other sources of strength included an increase in the money supply and an increase in building permits, often a barometer of future construction activity. Many economists believe the housing industry will lead the economy out of the recession.

But seven of the 11 forward-looking indicators were negative, including a drop in factory orders for consumer goods, an increase in weekly unemployment claims and a shorter workweek.

Other negatives were declining orders for new plants and equipment, fewer unfilled factory orders, a decline in prices of raw materials suggesting slack demand and faster delivery times indicating the weakness in orders.

The negative factors illustrated the weakness that persists in the manufacturing sector, a weakness cited by the Federal Reserve yesterday when it lowered its discount rate to stimulate the economy.

The lower discount rate -- the interest rate that Fed charges banks -- is expected to lead to a lower prime rate. Two major banks, J.P. Morgan & Co.'s Morgan Guaranty and First National Bank of Chicago, today cut their prime rates to 8.5 percent from 9.0 percent.

The prime rate is the interest rate that banks charge their best customers. Maryland banks generally change their prime rates a day or two after large national banks do so.

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