Some say recovery in area is under way

ECONOMISTS AGREE TO DISAGREE

November 27, 1991|By David Conn

A group of regional and national economists differed sharply yesterday on the likely duration of the recession, and some contended that the Baltimore area already has started to recover.

Most of the six economists and business leaders who gave presentations at a seminar on the area's business outlook yesterday said that the region's recovery started last summer, although one predicted more recession until next April. The consensus was that employment in manufacturing, transportation and utilities will exceed their mid-1980s growth rates next year, and that only construction employment will remain flat.

Despite the qualified optimism, all agreed that many factors -- including high consumer debt and possibly a long-term restructuring of industry that will dampen job growth -- are conspiring to make the recovery one of the weakest the Baltimore area has ever seen.

Employment growth, when it returns, will be far below the 2.9 percent average for the mid-1980s, Charles E. Boyd, an economist for Baltimore Gas and Electric Co., told the audience of more than 200 at the seminar, sponsored by the Greater Baltimore Committee and held at the Hyatt Regency Hotel.

If the audience came in search of good tidings, they didn't hear it from Brian P. O'Connor, IBM Corp.'s director of economic research and forecasting. "The bad news right now is that the [U.S.] economy is pretty much dead in the water," he said.

"What we have right now is an economy poised either to slip

backward . . . or optimistically to crawl its way forward into next spring," Mr. O'Connor declared. The gross na

tional product will rise 1 percent in the fourth quarter, he predicted, and then either rise 2 percent or less in 1992's first quarter or fall by as much as 2 percent.

The 2.4 percent GNP growth reported in the third quarter overstated the economy's strength when it was released, Mr. O'Connor said, because it reflected an average over the quarter, which started much stronger than it ended.

The nation's leading economic indicators, which were up slightly at the beginning of the year, have been flat lately, he noted. Retail sales haven't changed since May, auto sales have been flat, real income has grown only slightly and employment growth is non-existent.

Most American households are still working to burn off their 1980s debt and are not responding to the Federal Reserve Board's efforts to lower short-term interest rates, Mr. O'Connor explained. And because of the widespread restructuring of U.S. industry, which has led to layoffs of many thousands of employees, consumer confidence continues to plummet.

"I think what we have is a paralysis right now across retail sales markets," Mr. O'Connor said.

"People are deathly afraid of losing their jobs."

Unfortunately, both the federal and state governments are in no position to fuel a recovery. As much as he'd like to give the economy a boost before next year's election, President Bush is loath to break last year's deficit-reduction agreement with Congress, Mr. O'Connor said.

Defense spending is down and will go lower, he added.

Mr. Boyd pointed out that closer to home, the governor and legislature are facing a lose-lose situation in their struggle to lower the deficit: both higher taxes and reduced state spending will hurt the economy.

Some observers saw signs for optimism in the new austerity the recession is forcing on businesses. While bankers bemoan the tough federal regulation they say is adding to the "credit crunch," they admit it is introducing a measure of discipline that banks lacked in the last decade, according to Frank P. Bramble Sr., president and chief executive officer of MNC Financial Inc.

He said his loan officers are beginning to take the role of financial counselors for their clients, recommending slower but safer growth when appropriate. And even though the level of non-performing assets at Maryland banks and thrifts is still much higher than a few years ago,

Mr. Bramble said that their capital is still at healthy levels.

Banks' problems have gone hand in hand with those of the real estate industry, and this year's numbers will highlight that fact, according to Walter D. Pinkard Jr., president and chief executive officer of W. C. Pinkard & Co. Inc., a Baltimore commercial real estate firm.

He said net leasing of office space last year fell below 1 million square feet for the first time in more than five years, and this year the region is expected to show negative absorption of about 300,000 square feet -- that is, about 300,000 more square feet of space will have become available than was leased during the year.

But Mr. Pinkard predicted a positive leasing rate next year, but one far slower than during the real estate heydays of the last decade.

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