Buying power fell 2 percent 1991 decline first in U.S. in 9 years

LOSING THE RACE WITH INFLATION

Md. fared poorly

April 23, 1992|By Kim Clark | Kim Clark,Staff Writer

Americans' buying power fell 2 percent last year -- the first drop in nine years and the biggest decrease in generations -- confirming widespread impressions that this recession has been one of the worst in modern American history.

And Marylanders fared even worse, according to government statistics released yesterday, as their income adjusted for inflation dropped an average 3.1 percent in 1991. It was the state's worst performance in at least 21 years.

"This verifies what everybody knew: We were in deep trouble in )) 1991," said Cliff Milligan, an economist who studies Maryland for DRI/McGraw Hill.

Marylanders suffered from recession-induced layoffs and lower interest earnings from their savings just like other Americans. But Marylanders were hurt more than average because of the state's unusually heavy reliance on the construction and defense industries, Mr. Milligan said.

Of all types of employees, government workers did the best nationwide as their earnings rose about 1 percent more than inflation last year. Construction workers did the worst, losing about 10 percent of their average buying power.

But John Bush, who works for Baltimore County by day and runs a Perry Hall electrical contracting business at night, said his income from both economic sectors faltered last year.

Mr. Bush said he had to take furloughs from his day job because of the county's budget problems, then contractors stopped calling him for private wiring jobs. When he did get a call from customers, "they were cutting it so close on price I wasn't making anything," Mr. Bush said. He figures his income dropped by about a third last year.

The declines in earnings for people like Mr. Bush could cause further economic problems for the state.

Marvin Bond, assistant state comptroller, said a 0.5 percent decrease in Marylanders' real 1990 income cut the state's income tax revenue by about $50 million from what had been budgeted for last year.

And though the state expected a drop in the real average income of Marylanders last year, income tax receipts are running below even those lowered expectations. So far, the state is mailing out 5 percent more in refunds than had been expected, Mr. Bond said.

If things don't rebound soon, the decline in real income could mean more trouble for the state's economy as the state and local governments might be forced to make further cuts, sending economic pain through both the public and private sectors.

"There is a great interrelationship throughout the economy," Mr. Bond said.

Yesterday's Department of Commerce report was the latest to paint dire pictures of the nation's and state's economies.

Last week, the Congressional Budget Office found that the rich got richer, the poor got poorer and the middle class got squeezed during the boom years of the 1980s.

And last month, the Department of Labor said Maryland lost nearly 75,000 jobs during the recession year of 1991 -- the worst job loss in the mid-Atlantic region.

Despite the bad news, Marylanders remained richer than the national average.

Nationwide, per capita personal income rose 2.1 percent before adjusting for inflation, reaching $19,082 last year. The income statistics released yesterday showed the average income of Marylanders rose 1 percent in 1991 to $22,080, the fifth highest in the country.

But after subtracting last year's 4.1 percent inflation rate to determine "real" income, or buying power, Marylanders lost more ground than did the residents of all but four states. (The government defines income as the average pre-tax earnings and other income.)

Maryland's decline in real income was the worst in the mid-Atlantic region and tied for fifth-worst in the nation.

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