Economy could go either way for Ehrlich, O'Malley

May 30, 2010|By Jay Hancock

The Maryland economy is firmly on neither O'Malley's nor Ehrlich's side. Like an undecided voter, it's waffling between recovery and stagnation and waiting to cast its lot.

The economy decides elections.

That's why both Gov. Martin O'Malley and Republican gubernatorial candidate Robert L. Ehrlich Jr. are trying to bend economic perceptions their way. Sometimes a little too much.

Ehrlich complains of "record tax increases." That's probably a true assessment. In the 2007 special legislative session, O'Malley substantially raised the sales tax, the personal income tax and the corporate income tax — all at the same time.

Ehrlich also decries "record unemployment." But that's false. Maryland's highest unemployment rate during this downturn was 7.7 percent, in February and March. In 1982, Maryland unemployment was more than 8 percent all year.

O'Malley, for his part, correctly notes that Maryland added thousands of jobs in recent months. But he also sees records where they don't exist, saying the estimated 24,100 jobs added from February to April is "the highest three-month job gain for Maryland in at least 20 years." The state added 25,300 jobs during a three-month stretch in 2000 and 40,900 for a similar period in 1996, according to the U.S. Labor Department.

In fact, the Maryland economy is firmly on neither candidate's side. Like an undecided voter, it's waffling between recovery and stagnation and is waiting to cast its lot.

The recent job gain is undeniable good news for O'Malley, even though much of it is a bounce-back effect from the February snowstorms, which discouraged hiring and depressed employment when people couldn't show up for work. Although Maryland is still down more than 100,000 jobs from a peak reached in February 2008, the momentum seems to be on the side of growth.

Economists expect the national jobs report for May to show a fifth consecutive month of employment increase for the country. If that's the case, Maryland will probably follow suit.

It might not feel that way, but Maryland has had a much better time during this slump than the rest of the country. The state's huge share of federal spending normally protects it from downturns. Its proximity to Washington won it a disproportionate share of an enormous federal stimulus money. O'Malley's decision to protect the large majority of state workers from layoffs has put pressure on the budget but has also kept unemployment lower than it could have been.

The state's April unemployment rate eased to 7.5 percent and was more than 2 percentage points less than that of the nation.

Maryland's tax revenue situation also seems to be stabilizing.

Even Maryland manufacturing, the big loser of this and every recent recession, is recovering. The General Motors plant in White Marsh is back in business after a brutal furlough last year and poised to add hundreds of jobs as it starts making electric motors. Statewide, manufacturers have added 700 jobs since February, according to the Labor Department, after adjusting for seasonal fluctuations.

But Maryland is still indisputably in the middle of its worst slump at least since the early 1990s. Ehrlich can point to 200,000 unemployed Marylanders — double the number from two years ago.

Thousands of homes are still going into foreclosure. For the first four months of this year, nearly a third of all metro Baltimore home sales were either foreclosure deals or sales worth less than the outstanding mortgage, reports my colleague, Jamie Smith Hopkins.

Ehrlich can pound O'Malley on the state's poor performance in private-sector jobs. Maryland's relatively decent overall employment picture masks the fact that nongovernment jobs are at the same level now as they were seven years ago.

Given that even many of Maryland's corporate jobs are attached to the federal teat — defense contractors, medical researchers — jobs here that are truly independent of government seem to be getting rarer and rarer.

The state budget is balanced, thanks partly to federal aid, but whoever is governor next year must make extremely painful spending cuts. That will hamper a nascent recovery.

If there is one.

Nothing says hiring will continue apace. Some analysts expect a "double-dip" recession, in which economic output could start declining again after its recent spurt of growth. Europe's sovereign debt crisis and May's stock-market plunge have put employers on edge. The effects of President Barack Obama's stimulus package are wearing off, and Congress shows few signs of creating another one.

That said, Ehrlich has his work cut out in historically Democratic Maryland. He became governor the first time, in the 2002 election, partly because he was matched against a very poor candidate in Kathleen Kennedy Townsend. This time, the Democratic candidate is much better.

But the economy is worse.

In 1994, a Maryland unemployment rate of 5 percent and disappointing job growth were nearly enough to give the governorship to Republican candidate Ellen Sauerbrey. Today's 7 percent jobless rate might do the job for Ehrlich if it persists into November.

Anything much more than 8 percent will give him a very good chance of a double-dip governorship.

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