Md.'s gradual but solid recovery

August 14, 1994|By John E. Woodruff | John E. Woodruff,Sun Staff Writer

Marylanders went on a spring shopping spree that gave new life to the economy in the first half of this year, but many still had trouble finding good jobs and the state continues to rank near the bottom in employment growth.

But the second quarter brought signs that fuller employment may lie ahead.

Factory workers put in longer hours from March through June than in any four-month stretch since the boom years peaked in the fall of 1989, and help-wanted advertisements advanced by nearly one-fourth in the first half compared with the same period of last year.

Both trends, if they are sustained, are strong signs that employment may pick up in a few months, economists say.

Overall, the first half was a time of gradual but solid recovery, and the second half promises to duplicate that, according to an analysis of key indicators and interviews with economists.

"This has not been a great year, but it has been a good year so far -- the best Maryland has had since 1988. We foresaw overall jobs growth of 1 percent last December, and that's about where we are now and seems to be where we're heading through the end of the year," said Charles McMillion, president of MBG Information Services, a Washington-based consultancy that follows the state's economy.

"The Maryland Index of Leading Economic Indicators took some dips in January and April, but if you look at the longer-term trend lines, all the indicators are pretty well in place for about 1.25 to 1.5 percent jobs growth by the end of this year," said Michael A. Conte, director of regional economic studies at the University of Baltimore, which compiles the index.

Although an increase in the number of new jobs of 1.5 percent would be a relief from Maryland's relentless declines of the past four years, it still would be far short of the nation's growth rate, which stood at 2.68 percent at the end of June.

Along with gradual improvement came the Baltimore area's first big price surge in four years.

After being suppressed for four years by Maryland's sluggish economy, Baltimore-area consumer prices spurted by 1.6 percent from May through July, the biggest increase in the country and the largest two-month increase in Baltimore since the early-recession period that ended in September 1990.

An important indicator for further jobs growth in Maryland comes from the commercial construction industry, a prime driver of the state's late-1980s boom but which has been a heavy drag on the economy since overbuilding brought it near a standstill in 1990.

That sector appeared to bottom out in the second quarter and head toward a recovery some time in the second half. Builders signed contracts in the second quarter that were worth two and a half times as much as in the very weak comparable period of 1993.

"Nonresidential construction was a leader in the boom of the late 1980s, and then it led Maryland into recession in the early 1990s, but it obviously has not led us in this recovery. These figures show that there have been some very big contracts, and that is exactly what is needed for this critical sector to come back from a very moribund condition. If it could make a real contribution to jobs, Maryland would be on a roll," Mr. Conte said.

"There is an enormous amount of activity now in retail buildings -- in buildings to suit specific tenants, in turnover as tenants move up and in upgrading existing buildings. But there is no market at this stage for speculative commercial or office construction, and we do not have much going on in Baltimore," said Donald Manekin, of the Manekin Corp., the developer and real estate company.

Housing construction, which for a year has been a key force saving the state's slow recovery from falling back into recession, began to slacken in the second quarter. The ability of people to acquire new homes has been hurt by four interest rate boosts by the Federal Reserve Board, forcing mortgage loan rates up.

What the Fed does about interest rates in the next few months will be especially important to Maryland's economic prospects.

"For Maryland even more than for most states, interest rates will be critical in the second half, if only because strong housing construction has to be part of any true recovery," Mr. McMillion said.

Signs of gathering economic strength were visible in several areas during the first half: rising tonnage coming through the port in Baltimore; spectacular growth in passenger traffic at Baltimore-Washington International Airport; and increases in residential electric hookups and hotel tax collections. There also were declines in personal bankruptcies and unemployment rates.

But there were several weak spots that continue to be a drag on the state's recovery:

* Mounting business failures as small companies ran out of staying power in a slow recovery.

* Slower nonresidential utility hookups, suggesting little expansion by companies.

* Declining airport freight tonnage, which is regarded as a general indicator of business activity in the region.

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