Maryland strolls into difficult year

Overview: Rudely interrupted by rising unemployment, stagnant retail sales and increasing bankruptcies, Maryland's good times have faded into a cloud of worry. But there are a number of bright spots.

January 20, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

A year ago, the biggest question facing businesses in Maryland was how to find qualified workers.

Today, employers in the state are grappling with another question - whether or not to fire them.

While the country has been in recession since March, economists are divided as to whether Maryland also is in a recession or if it can sidestep falling into one this year. But there is no dispute that this will be a difficult year for the state. Economists, industry leaders and analysts predict that 2002 will be marked by:

Virtually no job growth.

Anemic retail sales because of flagging consumer demand.

Declining personal income.

Rising bankruptcies among small business, many of which were created during the unprecedented 10-year bull market.

Continued problems among technology companies, which were helping drive the state's economy until last year.

The most dire prediction has the Baltimore metropolitan area losing nearly 16,000 jobs as a direct result of the Sept. 11 terrorist attacks. That prediction is by the Milken Institute, a California think tank that released its forecast early this year.

"All of the obvious engines of growth are really sputtering," said Charles W. McMillion, chief economist at MBG Information Services, a Washington-based business information analysis and forecasting firm. "There is just a lot of headwind now with business investment very slow. I think 2002 is going to be a difficult year."

There will be some bright spots, economists say. Several sectors of Maryland's economy are expected to thrive, mainly biotechnology, defense, research and development and housing.

Biotech, defense and R&D should benefit from increased government spending, some of it directly related to the Sept. 11 terrorist attacks.

BioReliance Corp. of Rockville, for example, expects to reap millions of dollars in revenue by helping to develop and test 155 million doses of smallpox vaccine that the federal government has ordered to protect civilians.

"The whole fight against terrorists ... will benefit the Maryland economy tremendously," said Richard Clinch, director of economic research at the University of Baltimore. "Overall, the government is not being downsized."

Billions will likely continue to flow to Maryland universities and to private labs, said Phillip Singerman, executive director of the Maryland Technology Development Corp., a state-sponsored agency that promotes technology development.

Maryland defense facilities will benefit from a military buildup. Lockheed Martin Corp. of Bethesda won a government contract to design and build the nation's newest fighter jet, the Joint Strike Fighter, which could mean roughly $300 billion in sales for companies over the next four decades.

Northrop Grumman Corp.'s Electronic Systems unit in Linthicum will make the planes' radar and help produce their infrared missile warning and targeting systems. The planes could keep more than 500 engineers and other workers employed in the Baltimore area.

Homebuilders remain optimistic because demand for homes remains strong, and they don't see interest rates rising rapidly anytime soon.

"For the real estate industry and for the mortgage industry, I think the first quarter is going to be really good," said Theodore "Chip" Reichhart, president of First Horizon Home Loans MNC Division in Lutherville. "The first half of the year should be just a terrific opportunity for buyers."

Economists believe that those sectors provide Maryland with a broader-than-normal economic diversity, which will cushion the blow of the nation's recession.

They point out that the country's recession is hitting states that rely heavily on manufacturing. Only 7 percent of Maryland's work force is tied to manufacturing, about half the national average.

"Maryland has really positioned itself well to come out of this recession fairly strong," said Kathleen T. Snyder, president and chief executive of the Maryland Chamber of Commerce. "Maryland has done some very smart things in diversifying our economy. I think that is our strength."

But there will be plenty of challenges this year because many companies in Maryland are trying to keep costs down and won't be hiring.

"The labor market is going to be difficult," said Mahlon Straszheim, chairman of the Department of Economics at the University of Maryland, College Park, who expects job creation in the state to be "pretty flat in the next several quarters."

Jeff Petry, an economist at Economy.com, an economic consulting and forecasting firm in West Chester, Pa., predicts virtually no job growth in Maryland until next year.

"Very weak," Petry said. "Year over year it will be very minimal."

The creation of new jobs in the state ground to a halt in October. From February 2000 to February 2001, Maryland cruised along, adding 63,100 jobs. But by the end of October, just 1,400 jobs were added over the prior year, according to the U.S. Bureau of Labor Statistics.

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