Editor’s note: The following commentary appeared on CenterMaryland.org on October 24.
By Donald C. Fry
After lagging behind the national rate of economic growth for three years, Maryland’s economy is bound to improve soon, right?
Yes, but don’t expect a return to pre-recession economic growth rates in Maryland anytime soon, according to Federal Reserve Bank economist R. Andrew Bauer.
“The way that I would describe next year is that it’s not going to be an exciting time, but a steady time,” Bauer told more than 300 business leaders, managers and private-sector advocates who attended the Greater Baltimore Committee’s 2014 Economic Outlook on October 23.
“What I think is optimistic perhaps isn’t your version of what optimistic is,” Bauer told a breakfast audience at the Hilton Baltimore. He is senior regional economist for the Federal Reserve Bank of Richmond’s Baltimore office.
Bauer forecasts 2.1 percent and 2.8 percent growth in Maryland’s real gross domestic product for 2014 and 2015, respectively, after our state registered zero GDP growth in 2013.
“For Maryland, it’s going to be a year of catch up,” he said. “Right now the pace of growth – in terms of job growth – is a third of what it is at the national rate.”
So, what’s happening to our state’s economy? A couple of things, Bauer noted.
First, federal budget cutbacks have hit Maryland hard. Congress’ Budget Control Act of 2011 eventually resulted in the 2013 sequester, after which Maryland’s rate of job creation “slowed considerably.”
Ironically, in the Baltimore region, federal spending actually increased between 2010 and 2012. But then the bottom fell out, as federal spending in the region decreased by 15 percent between 2012 and 2013. “That’s a sizable amount of spending loss for the state’s economy,” Bauer said
“I think the worst of the cuts have taken place and what you are starting to slowly see is the impact of those cuts dissipate, which would set the stage for stronger growth in 2015,” he said.
Second, in a state that normally has a very strong labor market, Maryland is experiencing sluggish growth in its labor force. A “remarkable thing” is that the unemployment rate in Maryland and in the Baltimore region is currently higher than the national rate, Bauer noted. “This has only happened a handful of times in the past 40 years. It underscores the weakness currently in the labor market.”
Uncharacteristically, Maryland has endured flat or negative job growth in the information technology sector since 2013. Our state has even seen two quarters of actual decline in IT and management jobs in 2012 and 2013, Bauer reported. Now, growth in these sectors has “stabilized a bit,” with year to year job growth in September 2014 of 3.4 percent in the IT sector and around 3.1 percent in the management sector.
For the Baltimore region the news is better. Even in the sluggish economy, the region is expected to outperform much of the rest of the state, with job growth on pace with the U.S. average and with IT, health and transportation sectors leading the region’s growth, according to Bauer.
Statewide, expect industry growth in the construction, hospitality, professional business services, education and health services sectors. Expect some decline in trade, transportation and utilities despite the Baltimore region’s expected growth in that sector, and in the manufacturing industry, according to data presented by Bauer.
Meanwhile, another factor that’s holding the state back is general uncertainty in the private sector, particularly relating to regulations. Anything the state could do to streamline regulations “would go a long way” toward advancing Maryland’s economy, Bauer said.
Meanwhile, a panel of economic development professionals from the Baltimore region delivered encouraging reports on potential for future growth in Baltimore City and four surrounding counties:
- William H. Cole IV, president and CEO of Baltimore Development Corporation, identified a number of conversion projects – converting commercial buildings to residential usage – which has allowed for “unprecedented growth in that sector” and stated that millennials are “gobbling up apartments. He also cited a growing IT sector, the expansion of Under Armour, the planned construction of the Red Line and the pending build out of Harbor Point as major elements pointing to a bright future for the city.
- James C. Richardson, director of the Harford County Office of Economic Development, acknowledged Maryland is lagging behind in job creation but highlighted economic successes in Harford County. “Generally things are working in the right direction,” Richardson said. He noted that a major driver of Harford’s economy, Aberdeen Proving Ground, is the third largest employer in the state. Also, Harford County is enjoying growth in the technology sector and the manufacturing and distribution sector is emerging as a “bright spot” for Harford, he said.
- Edward C. Rothstein, president and CEO of the Anne Arundel Economic Development Corporation, said key businesses in Anne Arundel County include Northrup Grumman, Southwest Airlines, Anne Arundel Medical Center and Baltimore Washington Medical Center and that the county has 16 areas it is working to renew as part of its community revitalization program.
- Lawrence F. Twele, CEO of the Howard County Economic Development Authority, discussed growth in Howard County, particularly in Columbia. “We’ve seen activity really pick up over the past several months,” he said. Twele highlighted the National Security Agency and Fort Meade as major employers of Howard County residents and reported an influx of employers in Columbia, which he called a “growth area for the county. It’s booming.”
- Helga T. Weschke, deputy director of the Baltimore County Department of Economic and Workforce Development, highlighted what Baltimore County is doing when it comes to jobs and development. “Our focus lately has been on the workforce area,” Weschke said. “We’ve revitalized our workforce development council, focusing on the industry sectors that we’re truly targeting.” She noted Towson’s redevelopment and the county’s focus on growing its “entrepreneurial ecosystem” and cited development projects across the county, from Owings Mills to White Marsh and Sparrows Point.
As a whole, speakers at the Economic Outlook Conference illustrated what private sector leaders will be emphasizing to our state’s elected leaders after November 4: Maryland is oozing with economic potential and is poised for significant growth. But to maximize that opportunity we’ve got to take the necessary steps to enhance our competitiveness as a state.
Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.