Crystal Balls, Ouija Boards, and Basu? What's the 2011 Maryland Economic Prediction?

by Anirban Basu 27. January 2011

Equity Markets and Economy Have Turned for the Better

Why Economic Activity may not Accelerate as Dramatically as Expected this Year

A combination of ongoing stimulus and recent economic momentum has induced many economists to ratchet up their 2011 forecasts and there are plenty of reasons to be optimistic.  Consumer spending has been rising, with retail and food services sales up 7.7 percent between November 2009 and November 2010.  Auto sales have also been edging higher, including among America’s big three automakers.  The holiday shopping season was the best in several years.

It also helps that financial markets have been recovering.  On March 9th of 2009, the Dow Jones Industrial Average sank to 6,469.95 intraday.  As of this writing, it stands at well above 11,600.  Since financial market performance often foreshadows broader economic performance, the implication is that the economy is in for some better times ahead.

While it is true that 2011 is very likely to be a year a solid growth, it is possible that members of the dismal science have become a bit too optimistic in their projections in recent months.  There are (at least) ten factors that could act as speed governors on the U.S. economy this year.

  • Consumers tap their brakes

Though household spending was unexpectedly strong in 2010, in the absence of substantial income growth, this is unlikely to continue particularly if consumers are spooked by unemployment rates that still hover near double digits.  Many consumers may feel buyers’ remorse during this year’s first quarter as credit card statements tumble in.

  • Housing market recovery scrubs much of its speed 

The fear had been that once the first-time and move-up buyer tax credits expired, the housing market would begin to swoon.  That is precisely what happened, with existing home sales slumping since May and new home sales performing even more sluggishly.

  • Federal spending cuts diminish momentum 

Congress has not been as serious about deficit reduction since arguably the early 1990s.  Already, the newly-seated Congress is talking seriously about substantial cuts to discretionary spending, including within the Department of Defense budget.

  • State/local tax increases become a source of slippage

At least 46 states struggled with fiscal shortfalls when adopting budgets for the current fiscal year, which in most states began July 1st.  The collective budgetary gap for 2011 and 2012 is $260 billion.

  • The stimulus turbocharger cuts off

Though much of the $787 billion associated with the American Recovery and Reinvestment Act of 2009 has yet to be spent, by some point in 2011, the federal stimulus driver will begin to wind down, and that remains another reason to believe that another economic downturn could be headed our way.

  • European debt crisis is no formula for success

Greece, Portugal and Spain have all experienced debt downgrades.  Greek debt has now reached junk status.  Though members of the European Union have established a $1 billion bailout fun, there is still the possibility of a sovereign default going forward.  Nearly 100 European banks are being stress tested.

  • State and local government spending further deflates aggregate demand

Despite ongoing assistance from the federal government, it is clear that most state and local governments have begun to decelerate spending.  While there is something positive associated with the rationalization of spending levels, in the short-term the impact is negative including upon contractors.

  • Government spending cuts in other parts of the world puts global expansion into neutral 

At the most recent G-20 summit, nations from around the globe agreed to slash their deficits over time.  A number of countries in Europe, including Greece and Spain, have initiated austerity programs through a combination of tax increases and spending adjustments.  Not surprisingly, recent data indicate that global economic expansion is beginning to soften.

  • Bond market continues to fade

Bond traders have become increasingly unnerved by sovereign debt issues, growing fears of inflation and the temptation to leave fixed-income assets for equities.  If the bond market continues to experience outflows, interest rates could rise further, slowing economic progress in the process.  According to Barron’s, bond mutual funds redeemed nearly $15 billion in December, the heaviest outflow since October 2008.

  • Unemployment remains high and private job growth has not picked up sufficiently 

The key to sustained economic momentum is income growth.  With employment growth still lagging and with the public sector now retrenching, the prospects for a significant acceleration in wage/salary income growth next year are weak.

Looking Ahead

Despite these risks to the economic outlook, this year is shaping up to be a good one for the U.S. and Maryland economies.  The nation’s economy is positioned to expand at 3 percent or better adding an estimated 1.6 million jobs in the process.  Unemployment should be closer to 9 percent by the end of the current year.  Maryland is positioned to add more than 40,000 jobs this year, respectable performance by historic standards.

Based on that, more substantial exposure to equities appears warranted.  Though investors must always remain vigilant, there is now more transparency regarding the direction of the U.S. economy than there has been for several years, and that has been and likely will be good for stocks in general.

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.

Snow, Customer Service and Technology

by Kevin Lynch 26. January 2011

With the winter season comes the inevitable snow and the associated disruption. Given the challenge Marylanders have driving in it, we often open our branches and Contact Center later than our scheduled hours. During last years "Snowmageddon", our locations were closed for a number of days as we all dug out of the blizzard.

In the past, this meant that customers who had a question or needed some help where unable to contact us. Last year, for the first time, we were able to connect with customers from our web site using our "Click to Chat" feature. Our Contact Center employees were able to log in from home and monitor and respond to chats with customers. While our ability to address some issues was limited, they were, for example, able to help someone sign up for online banking. We'll continue to use this during outages and delays this year.

So, if you find yourself stuck at home in the snow and have a question for us, check out our website. There's a good chance we'll be available to "Chat".

Martin Luther King, Jr. Day: Not just another Bank Holiday a.k.a another day off…

by Erica Starr 14. January 2011

Dr. King is known for being an iconic figure in the advancement of the Civil Rights Movement in the United States and around the world. Each year on the third Monday of January schools, federal offices, post offices and banks across America close as we celebrate the birth and the life of Dr. Martin Luther King, Jr.  January 17, 2011 (the observed holiday for Martin L King Jr. Day) marks the 25th anniversary of the national holiday commemorating the birth of Martin Luther King, Jr.

If you’re one of the fortunate who has the day off, then take advantage of the opportunity. Instead of using the day to lay around the house or finish up that last bit of gift returns/exchanges, get out and commemorate Dr. Martin Luther King, Jr.’s  legacy by learning about his life at one of the many celebrations and programs at Baltimore area museums and libraries.

The city of Baltimore and its surrounding counties do a fabulous job providing numerous activities in which folks can learn and honor the life and dreams of one of the greatest visionaries in recent history.  For starters, come out and enjoy the city’s 11th Annual Martin Luther King, Jr. Day Parade as it proceeds down MLK Blvd. Too cold? That’s okay, stay warm at the American Visionary Arts Museum as they celebrate Martin Luther King Day at the AVAM. Not lucky enough to have the day off on MLK Day? That’s okay too.  Port Discovery is hosting their “I have a Dream Weekend.” Another weekend event that you might want to check out is the Reginald F. Lewis Museum of Maryland African American History ‘s “Martin Luther King. Jr. Weekend”. As you can see, Baltimore is all about options - from parades to lectures, there are plenty of different activities out there for you and your family to spend the long weekend.

Although it is a most welcomed day off for some, please remember that it is also a national day of service to honor the life and dreams of the man responsible - Dr. Martin Luther King, Jr.

Click here for details on Baltimore MLK events.



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