Maryland's 2012 Economic Outlook with Anirban Basu

by Anirban Basu 18. January 2012

Anirban Basu

Anirban Basu Chairman & CEO of Sage Policy Group, Inc

Maryland Gained Momentum Late Last Year

For much of last year, Maryland’s economic performance was among the worst in the nation. For instance, year-over-year job growth in the state was in negative territory or close to zero for most of the summer. But like the balance of the nation, economic performance began to materially improve toward the tail end of the year. For the 12 months ending in November 2011, employment in the Free State expanded 0.7 percent (+18,300 jobs), ranking the state 33rd along this dimension. That may not sound like anything to crow about, but just a few months prior, Maryland ranked dead last. Maryland’s subpar performance mid-year appears to have been closely linked to the nation’s debt ceiling debacle and the impact of that episode on federal agency spending, including upon procurement.

Exhibit 1. State-by-state Job Growth, 12-month Percent Change, November 2011

1st Mariner Blog - State-by-state Job Growth, November 2011

Through it all, Maryland has managed to sustain one of the nation’s lowest unemployment rates. Statewide unemployment declined to 6.9 percent in November, the lowest level since June 2011. That is the 15th lowest unemployment rate in the country.

Other data is also largely encouraging. The most recent Maryland Survey of Business Activity conducted by the Federal Reserve Bank of Richmond indicates that business activity in Maryland increased moderately in December. The general business activity index registered a reading of 7, a meaningful increase from -3 the previous month and the first positive reading since September. The expectations index, which declined 9 points to 22, indicated that while broadly positive expectations of general business conditions six months from now have moderated slightly, survey respondents continue to predict economic growth in the near term.

All of this is consistent with the notion that some of the factors that restrained growth in 2011, including federal government gridlock, sagging home prices and issues emerging from Europe, are likely to continue to shape economic performance during the first half of 2012. However, despite these and other headwinds, the state’s economy is anticipated to continue to grind ahead for now.

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland. Mr. Basu is one of the Mid-Atlantic region’s most recognizable economists, in part because of his consulting work on behalf of numerous clients, including prominent developers, bankers, brokerage houses, energy suppliers and law firms. On behalf of government agencies and non-profit organizations, Mr. Basu has written several high-profile economic development strategies, including co-authoring Baltimore City’s economic growth strategy. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Bank.

Pace of Job Growth Remains Lackluster

by Anirban Basu 18. October 2011

Anirban BasuThis was supposed to be a decent year for job growth in Maryland.  With the nation’s economy now in recovery and adding jobs, positive base realignment effects, cyber-security, healthcare, higher education, the Port of Baltimore, BWI, retail and other industry drivers, expectations were probably higher coming into the year than at any point since 2007.

But the state’s job engine has generally sputtered.  According to the most recent data available from the Bureau of Labor Statistics, Maryland’s economy shed 2,500 jobs in August, a 0.1 percent drop from the previous month and only up 0.1 percent from one year prior.  That year-over-year performance ranks the state 43rd in terms of job growth.  During the same twelve-month period, the nation added 1.49 million jobs or 1.0 percent.

While the nation has outperformed Maryland along this dimension, data indicate that job growth has been softening nationally.  This may seem like a strange claim to make since the most recent employment report from the Bureau of Labor Statistics revealed that the nation added 103,000 nonfarm jobs in September, the best performance since July and better than August’s 57,000 net new jobs figure.

But dig into the data, and the message from September is not as clear.  The 103,000 figure includes roughly 45,000 Verizon workers who came back to work.  Strip out those jobs, and the September figure looks more like 58,000.  What’s more, those 45,000 information industry workers went missing from the August jobs data, which means that actual job creation in August was closer to 100,000.  However, approximately 22,000 State of Minnesota employees came back to work in August, meaning that the adjusted August figure is around 78,000.  Consequently, while many people are under the impression that job growth accelerated in September, it did not when one takes extraordinary items into account

What’s more, the pace of job growth continues to fall well short of what is needed to bring down the nation’s unemployment.  For several months, the nation’s leading measure of unemployment has been stuck at 9.1 percent and the nation still has roughly 6.6 million fewer jobs than it did when the recession began in December 2007.  The industries that have suffered the largest job losses include manufacturing, construction and distribution, all key industries in the Baltimore metropolitan area.

The employment look remains cloudy.  Financial markets swooned during the third quarter, perhaps implying further economic slowing in the months ahead.  Were that to occur, job growth would remain lackluster at best.

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland. Mr. Basu is one of the Mid-Atlantic region’s most recognizable economists, in part because of his consulting work on behalf of numerous clients, including prominent developers, bankers, brokerage houses, energy suppliers and law firms. On behalf of government agencies and non-profit organizations, Mr. Basu has written several high-profile economic development strategies, including co-authoring Baltimore City’s economic growth strategy. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Bank.

Is the Cost of Living and Inflation Higher in Washington-Baltimore Area?

by Anirban Basu 18. July 2011

The Difference between Inflation and Cost of Living

Inflation is defined as an increase or change in the general price level. Generally, inflation is viewed negatively since (all things being equal) an increase in prices reduces purchasing power. The cost of living can be understood as the general price level itself. In other words, a place that is terribly inexpensive to live in can be associated with high inflation, though if that high inflation persists, that place will not remain inexpensive. Conversely, an area that is expensive can be associated with low inflation.

  • Maryland is an Expensive Proposition

Data indicates that Maryland and the Washington-Baltimore area are associated with both a high cost of living and higher rates of inflation than national averages. For instance, 43 states were associated with a lower cost of living than Maryland during the final quarter of 2010 according to the Council for Community and Economic Research (Exhibit 1). Maryland’s overall cost of living is roughly 25 percent higher than the national average, housing is 69 percent more expensive and utility costs are 17 percent higher. Transportation and grocery costs are also higher in Maryland by 8 and 10 percent, respectively.

Exhibit 1. State Cost of Living Rankings, Fourth Quarter 2010
State Cost of Living 2010The recent housing downturn, which has been disproportionately felt on the coasts, has both reduced inflation and diminished the difference in cost of living with the balance of the nation more recently. Consumer prices excluding food and energy expanded 1.9 percent in 2009 in the Washington-Baltimore region and just 1.4 percent in 2010. According to the Federal Reserve Bank of Richmond, the average value of homes in Maryland has declined 21.4 percent since 2007. This has reduced the overall pace of inflation.

However, inflation ran at more than a 2 percent pace during the first three months of 2011 locally, in part a reflection of growing pricing power among area businesses. Between May 2010 and May 2011, core prices in the Washington-Baltimore area climbed 2.3 percent compared with 1.5 percent nationally.

Exhibit 2. Core CPI Growth by Select Metropolitan Area, 2000 v. 2010
]Bureau of Labor Statistic
Implications

Despite the recent and ongoing housing downturn, Maryland remains an expensive proposition. Like other Americans, Marylanders have had to deal with a host of rising costs, including food and energy prices.

Indeed, Moody’s Analytics cites high business costs as being one of Maryland’s biggest obstacles to recovery. Operating costs are higher in Maryland because businesses consume pricey energy and transportation. Moreover, the overall higher cost of living necessitates higher wages, which creates further operating cost disadvantages.

This may help explain Maryland’s lackluster job creation in recent months, which has significantly underperformed the nation. One of the questions for state and local policymakers is whether or not there are possible shifts in policy that would help reduce business operating costs without generating substantial harm to quality of life.



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