By Donald C. Fry
Sam Fraundorf, Wilmington Trust’s top investment executive, looked out from the Hyatt Regency podium at the more than 400 executives gathered for the Greater Baltimore Committee’s sold-out October 10 Economic Outlook Conference and summed up his 2012 forecast in five words: “It’s going to be okay.”
Maryland and the nation will not slide back into recession, said Fraundorf, president of Wilmington Trust Investment Management, now a division of M&T Bank. “That doesn’t mean it’s going to be perfect. As a matter of fact, it’s going to be sluggish. It’s going to not be terrific. But we’re not entering a second recession.”
So maybe it won’t be the end of the world, economically, in Maryland. But a closer look at what Fraundorf and fiscal experts in Annapolis are telling us about Maryland’s economy does raise concern about whether the immediate future they are projecting qualifies as “OK.”
Factors that bode well for Maryland, according to Fraundorf, include indicators showing that a higher percentage of our state’s workforce is employed than in the nation as a whole, Marylanders’ personal income has grown at a better rate than the national average since 2007, and worker productivity in our state is significantly greater than the national average.
Maryland clearly weathered the recession better than most states.
However, the nation’s job growth rate is “starting to slow” and Maryland’s job growth is slower than the nation as a whole, according to Fraundorf. Maryland’s employment growth rate so far in 2011 is a meager 0.2 percent, compared to 1.6 percent for the nation.
With employment, “businesses are starting to take a pause. They’re not laying off workers necessarily, but they’re taking a pause,” Fraundorf said. “They want to see consumption increase. They want to see top-line revenue and sales. Then, we’ll talk about adding some more employees to the workforce.”
Overall, Maryland has lost about 110,000 jobs since the state’s employment peak in 2007. Statewide, about 4,500 jobs have been added so far in 2010 into 2011, according to Fraundorf.
But “we’ve got a contraction going on in terms of federal spending,” he warned, noting that the Congressional “super committee” created to cut spending poses significant downside risk for Maryland, where federal spending doubled between 2000 and 2009, but fell slightly in 2010, primarily as a result of a $1 billion reduction in defense spending in our state.
Maryland’s economic outlook for 2012 is “getting flat,” said Fraundorf. “But flat doesn’t mean a recession.”
Maryland’s economy will grow at less than half the rate of the national economy in 2012, Fraundorf predicts. Specifically, he projects 1.1 percent growth in Maryland’s gross domestic product in 2012, compared to the 2.7 percent GDP growth rate he forecasts for the U.S. economy as a whole.
This forecast appears to reinforce the Maryland Board of Revenue Estimates’ own Sept. 21 report to the governor, which warned of “much slower growth” for Maryland’s economy for 2012 and 2013.
The board, however, forecasts that Maryland’s employment growth rate will “hover” around 1 percent during the next two years. This would be an improvement from three consecutive years of net job losses in Maryland, even with the BRAC influx. But it would be far short of our state’s employment growth rates prior to the recession.
Should Fraundorf’s GDP projections turn out to be accurate, 2012 would be our state’s worst comparative GDP performance against the national economy in at least nine years.
That begs the question of whether that qualifies as “OK.”
These are just projections. And, as Fraundorf points out, Maryland can’t escape the effects of national economic trends. But all of this serves to remind business advocates and state lawmakers of two key issues.
First, we can either passively accept whatever buffeting national economic trends inflict upon us, or we can proactively work to strengthen our state’s economic competitiveness. I highly recommend that business leaders and state policy makers concentrate on crafting, together, a consensus strategy to accomplish the latter.
Second, in making policy decisions in Annapolis and in county seats across the state, our elected leaders must keep in mind one indisputable fact of life: the private sector, not government, drives job creation and economic growth.
A primary role of government is to create an environment for job creation. By focusing on that mission in Maryland, we can ensure that our economy is better than “OK.”