Recovery? Not so fast, say economists Modest forecasts offered in Baltimore

December 02, 1992|By David Conn | David Conn,Staff Writer

Baltimore was host to a couple of true practitioners of the "dismal science" yesterday, national and regional economists who downplayed the latest positive economic news and called for nothing more than "cautious optimism" for the country and the state.

Their tepid forecasts, served up at the Greater Baltimore Committee's 10th annual Business Outlook seminar, followed upbeat economic reports in recent weeks showing that the gross domestic product hit a four-year high, new jobless claims dropped, home sales increased and consumer confidence jumped.

"This is generally heralded as being the launch of the cyclical recovery," said Gail D. Fosler, vice president and chief economist at the Conference Board, a national business research organization that released the consumer confidence numbers.

"I think we're getting a little ahead of ourselves," she said, speaking before the release of yesterday's figures showed a rise in the index of leading economic indicators and construction spending.

She noted that twice this recession, the nation placed its hopes on an imminent recovery, only to be disappointed as stagnation slogged on.

"I think a darker shadow in our consumer confidence index is that there was no indication that consumers saw an improvement in their current job prospects," she told an audience of about 200 at the Omni Inner Harbor Hotel. All the confidence, she said, came from hope for the future rather than present circumstances.

Although she saw signs of improvement, Ms. Fosler said, they aren't strong enough to portend the arrival of a cyclical recovery, or a sustained period of 3 percent or 4 percent annual economic growth.

"Probably in the December-to-March period we're going to see another round of disappointing economic news," she predicted.

Still, some indicators are positive. Although there has been no year -to-year employment growth, the number of overtime hours worked by American employees has reached a historic high. And the percentage of consumers who said they had postponed a major purchase rose from 31 percent in March 1991 to 45 percent in September 1992, Ms. Fosler said, a level of pent-up demand that could drive up consumer spending,which accounts for two-thirds of the domestic economy.

"When we are able to generate enough income in the economy to unleash this pent-up demand," she said, "we're going to see greater-than-2-percent employment growth."

Even if that's true, the recovery is bound to leave Maryland behind, according to Mahlon R. Straszheim, chairman of the University of Maryland's economics department and economic adviser to Gov. William Donald Schaefer.

"My own sense is the state is going to lag the national recovery by at least a year or so," he said.

Although the employment picture is improving, he said, the state is still losing jobs at a rate of 2 percent a year, mostly because of continuing -- and likely permanent -- job losses in the service sectors. It will be about a year before employment growth appears, at about a 1 percent or 1.5 percent annual rate, Dr. Straszheim said.

But with moderate economic growth of about 2.5 percent next year, one bright spot will be the state's budget, the economist predicted. "I believe that the state will live well within its means, at least through this fiscal year and probably through fiscal 1994."

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