After outpacing the U.S. economy in three of the last four years, Maryland is expected to follow the nation's lead and experience a slight slowdown of its own this year.
"There are signs that Maryland is now beginning to join the nation in a soft landing," said Anirban Basu, chief economist for RESI Research & Consulting, the economic forecasting arm of Towson University. "The slowdown is going to become more pronounced in the early part of 2001. There's no question that's going to happen. The real question is what happens beyond that."
The answer will depend in part on the Federal Reserve, which just this month embarked upon a campaign to bring down short-term interest rates. Economists believe that overall U.S. growth will be slow in the first six months of year, though most predict the economy could resume its brisker pace in the year's second half and into next year.
That's a pattern several key Maryland sectors might follow this year and next.
Among those sectors are:
Retailing, which suffered through the most disappointing holiday shopping season in 10 years, will probably remain somnambulant through the first half of the year as consumer confidence remains in the dumps. That won't help the U.S. or Maryland economies. In the state, the wholesale and retail trade sector accounts for nearly a quarter of the Maryland economy, meaning that moribund spending could significantly affect the state's job market.
Even so, because Maryland is a high-wage state with unemployment rates below the national average, retailing should remain stronger here than elsewhere. And economists think falling interest rates could revive stock prices, which could propel consumer confidence higher and boost retail sales in the second half of this year.
Housing, which has a tremendous spinoff impact because of all the things a consumer buys after purchasing a home, should be slower, though healthy, this year in the Baltimore region.
Home sales in the region were slightly higher last year than in 1999, after increasing in 1999 compared with 1998. But sales are expected to slow this year. Even so, prospective homebuyers will face higher prices and a lean supply, though declining interest rates should cushion the impact and perhaps boost sales later this year, local real estate experts say.
The auto sector, which was on a record pace in Maryland last year until sales stalled late in the year, is expected to weaken this year as nervous consumers postpone the big-ticket purchases new cars and trucks represent.
Still, because Maryland's economy remains stronger than those of many other states, auto dealers here should fare better than those in much of the rest of the country. And if falling interest rates ignite stock prices, car buyers could throttle up their spending later in the year.
Overall, the Maryland economy has been strong the past few years. Its growth rates of 4.6 percent for 1997, 4.5 percent in 1998 and 4.65 percent in 1999 all exceeded the average for the U.S. economy, which was in the midst of a record run. Even last year's estimated growth rate of 4.15 percent for the state economy was just a hair below the U.S. average of 4.2 percent recorded for the first three quarters of the year.
After racing along at a 5.2 percent growth rate in the year's first half, the U.S. economy slowed to a 2.2 percent trot in the third quarter. Against that backdrop, however, as late as November local economists were saying that Maryland was showing no signs of giving in.
Job growth rate halved
Ultimately, however, even the Maryland economy started to succumb to the influences of the U.S. slowdown. Though the state unemployment rate edged up to only 3.5 percent in November from 3.2 percent the year before, the fast pace of job growth was slashed to half that of earlier in the year.
Though such sectors as retailing, housing and auto sales were clearly feeling a pinch, it appeared to be a foregone conclusion that manufacturing - once a mainstay of the Baltimore region's economy - was headed for a recession.
"For manufacturing, it could be a pretty glum year," said Paul Engle, a manufacturing and technology consultant for the Baltimore office of Grant Thornton LLP.
Even so, at the brink of the most worrisome slowdown since the recession of 1990-1991, economists say this year's model of the Maryland economy is leaner, more diverse and more keenly focused on important emerging industries. The state has pared back its dependence on manufacturing and heightened its involvement in the fast-growing service sector.
Manufacturing has gone from 9 percent of the state economy in 1990 to about 7 percent today, while the service sector has grown from 29 percent to 35 percent, said Jeff Petry, an economist who follows Maryland for Economy.com, the West Chester, Pa.-based economic research group formerly known as RFA.