Maryland economy rises from rock bottom Unemployment falls, tax collections increase at last

January 18, 1998|By Jay Hancock | Jay Hancock,SUN STAFF


Maryland's term on the economic tundra seems over. After eight years of unaccustomed slow growth, employment turbulence and fiscal doubt, the state has rejoined the nation in the sunny commercial uplands.

Maryland gave birth to 40,000 jobs last year and is expected to mint at least another 40,000 this year. How good is 40,000 jobs? From 1989 to 1996, the state managed to add 54,000 jobs -- less than 8,000 annually.

Unemployment is down. Incomes are up, and so are tax collections. Layoffs have dwindled.

"Maryland has had its time at the bottom of the list," said Margaret M. Murphy, economist with the Baltimore Branch of the Federal Reserve Bank of Richmond, Va. "I think we're up and will continue to go up."

The state is adding jobs at the same rate as the nation -- about 2 percent annually.

But Maryland's decent job performance actually understates its economic health, some analysts say.

"If you look at where jobs are being added, they're in the high-wage, high-productivity areas," said Mark Vitner, who follows Maryland for First Union Corp., a Charlotte, N.C., banking company.

That means incomes are rising sharply -- faster than job growth, much faster than inflation.

Regional Financial Associates, an economics consulting firm in West Chester, Pa., expects total personal income in Maryland to have soared by 5.5 percent in 1997 and wages and salaries by 6.8 percent, when the final figures are in.

And those measures don't include capital gains from a long-running bull stock market, which have propelled incomes in many Maryland households even higher.

Inflation, meanwhile, was only 1.7 percent nationally last year and even tamer in Maryland.

"In terms of personal income growth, 1998 will probably be the best year in almost a decade," said Mark Zandi, a Regional Financial Associates economist who tracks Maryland. "In terms of real [after inflation] income growth, 1998 will probably be the best since the mid-1980s."

But that doesn't mean everyone is thriving, or that Maryland doesn't face big risks and challenges.

The flip side of the inflation outlook is that businesses of all kinds find it almost impossible to raise prices. Many are as busy as can be but still struggle to earn a profit.

"I could get as much work as I want, if I wanted to do it for nothing," said Calvin Mims Sr., owner of Calmi Electrical Co., a Baltimore electrical contracting firm. "In the bidding process, the numbers are so low and so cheap, it's like people still don't have any work. Back in the '80s, there was a decent profit margin."

At Sparks State Bank in Baltimore County, an affiliate of Mercantile Bankshares Corp., "we see a real pressure to lower interest rates," said Chief Executive Bradley Moore. "We have customers that have small-business loans with us that are coming back to us saying they can get lower rates at other banks."

The pricing pressures are so great that economists increasingly talk about the risk of widespread and sustained price declines, or deflation. Economies in a dozen Asian countries have been imploding for six months, and the danger is that the resulting epidemic deflation is being exported to the United States.

Besides helping to suffocate profit margins, deflation corrodes the value of everything from houses to cars to factories. And it puts debtors in a headlock, as the value of their money shrivels while what they owe stays the same.

Now that U.S. credit-card borrowers are hocked to the tune of more than $500 billion, bankers may be sleeping less soundly -- especially since personal bankruptcy filings set another record last year for Maryland and many other states.

"The thing that troubles me most are consumer debt levels in Maryland and the U.S.," said Charles McMillion, chief economist with MBG Information Services, a Washington economics consulting firm. "There are several different ways to measure this stuff. But they're all at or near an all-time high, at the same time that per-capita savings is at an all-time low. So if there is a significant shock, consumers are not really in great shape to absorb it."

If nothing else, the Asian collapse poses a potent threat to at least some of Maryland's manufacturers. At present currency levels, Asian goods are being marked down 50 percent and more from prices last summer, prices that were already competitive with U.S. factories.

For companies such as suit maker Jos. A. Bank Clothiers Inc. and Bethlehem Steel Corp., analysts said, the competition may get hotter.

On the other hand, the crisis may help firms buying raw materials or finished goods from Asia, such as spice maker McCormick & Co.

In any case, economic specialists believe that the Asian troubles will have a broader effect on the U.S. and Maryland economies as well.

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