Md.'s recovery: weak, wobbly More bankruptcies symptom of woes

October 11, 1992|By David Conn | David Conn,Staff Writer

The facts are clear and disheartening: A flat economy means lower state tax revenues, and lower tax revenues means higher state budget deficits.

That cold equation moved an emotional Gov. William Donald Schaefer and the state Board of Revenues to cut $200 million from the budget earlier this month. In January, the General Assembly will consider budget cuts, higher fees and new lottery funds worth another $250 million.

"Every [cut] that affected people I felt personally," Mr. Schaefer said. "I live this stuff."

Life is not about to get much better for the governor -- or for the rest of the state. The consensus of economists and business leaders is that Maryland's economy is growing, but only at a snail's pace. While some bright spots continue to pop up in monthly economic reports, even the normally optimistic Mark L. Wasserman, secretary of the Department of Economic and Employment Development, has called Maryland's recovery weak.

Some others are more forthright. "The state is mired in a recession which is far worse than the nation," says Dr. Mahlon Straszheim, chairman of the economics department at the University of Maryland at College Park.

That's the judgment he gave Mr. Schaefer, who has retained Dr. Straszheim to provide advice about the size and direction of state revenue and budget trends. With some prominent economists beginning to use the term "triple dip" to characterize the national recession, Dr. Straszheim's view for Maryland is one of continuing stagnation.

"We entered [the recession] sooner, and we've gone deeper," he said, "and we're going to come out later."

One symptom of the recession: the continuing rise in bankruptcies. The American Bankruptcy Institute, a research organization, says Maryland ranked sixth among all "districts" in the nation for its 25.7 percent increase in bankruptcy filings in the year ended June 30. In July and August this year, filings continued to increase -- the total was almost 16 percent ahead of the comparable period last year, according to the U.S. Bankruptcy Court in Maryland.

Dr. Straszheim pointed to three important factors dogging Maryland's recovery:

First, the tremendous amount of overbuilding in the commercial real estate sector has left the real estate, construction and banking industries sitting on the sidelines of the painfully slow climb out of the recession.

Even the historically low interest rates have done little to spur residential construction, although a report last week showed that Baltimore-area home sales in September rose for the fourth straight month.

Douglas Kinney, an economist at Baltimore Gas and Electric Co., said the company's requests for new "hookups" were running about 10 percent higher than last year's level through August, which is good. Still, that rate was lower than the rest of the nation, and he doesn't expect the pace to increase.

Second, according to Dr. Straszheim, the white-collar service sector, which comprises more than a fifth of the state's jobs, is in the midst of what many believe is a permanent restructuring, where jobs lost may never return. That's been evident in the banking industry more than most others as regional consolidations continue to rob Maryland of locally-owned institutions, not to mention jobs.

MNC Financial Inc., which employed about 10,000 people a year ago, is down to 7,800 now. And if the planned merger with Charlotte, N.C.-based NationsBank Corp. takes place, more banking jobs could be lost.

Finally, a national "unwinding" from the consumptive excesses of the '80s, he said, has left consumers sitting on their

pocketbooks trying to consolidate debt.

Retailers have reason to be nervous as the Christmas season approaches. Last year statewide retail sales were down almost 5 percent in the fourth quarter compared with 1990, according to DEED, and only in one month this year have sales outpaced the year-earlier performance.

"I think this Christmas is going to be better than last year for retailers, but I don't think it'll be a lot better," said Brent Clum, a retailing analyst at T. Rowe Price Associates Inc. Mr. Clum warned that retailers could end up fulfilling their own negative prophecies by keeping inventories too lean for whatever level of consumer demand materializes.

And price cuts, especially among some prominent apparel retailers, such as The Gap and Merry-Go-Round Enterprises, have meant more sales but often lower profits, Mr. Clum said.

Continuing layoffs have left even the gainfully employed wary about their futures. Westinghouse Electric Corp.'s Electronic Systems Group in Linthicum lost about a fourth of its 12,000 jobs since 1991. And the General Motors strike in Ohio last month left 3,200 Baltimore workers out of a job, albeit temporarily.

In Maryland, the jobless rate ticked up one-tenth of a percentage point in August, as employment fell by almost 40,000 people. Some of that drop-off came with the end of summer jobs, and in fact the labor force diminished as some people quit to go back to school.

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