Thursday, March 30, 2017

Also In
January 2017:

2017 Forecast: A Generally Positive Vibe

Compiled by Mark R. Smith, Editor-in-Chief

January 3, 2017

Posted in: News

Maryland’s location next to the Nation’s Capital, its education and income levels, and its standing as one of the greatest high tech settings in the U.S. have not always equaled acknowledgement as one of the premiere locales to do business in the country.

Whether that changes sooner rather than later is unknown, but to hear the local leaders who contributed to this year’s forecast in The Business Monthly, things aren’t looking bad these days.

They seem to feel that Maryland’s economy is, generally speaking, in good shape; and proposals in the general assembly that could become law seem to include some that could significantly boost the state’s business climate. That makes sense when considering that Gov. Larry Hogan, who made his mark as a businessman before his upset win in 2014, is just completing year two at the helm.

Banking

Mary Ann Scully, CEO, Howard Bank

Bankers come into 2017 after two months of greatly improved stock performance, mostly driven by the expectation that both the interest rate levels and the curve will rise and slightly steepen, respectively. While not all banks have the same degrees of interest rate sensitivity, all should benefit from slightly higher, longer-term lending rates, while clients should benefit from slightly higher savings yields.

The other expectation, with a high degree of certainty, is for slightly loosened regulations. The regulatory agency that has created the most noise for banks, the Consumer Financial Protection Bureau (CFPB), has benefitted from its special status as an arm of the White House (headed by a director not approved by Congress, unlike similar entities). The CFPB was created with the good intentions of avoiding consumer abuses promulgated mostly by non-depository banks in the run up to the recession; but it has had a tendency to rule by enforcement action against traditional banks.

Given the promises of the new administration to reduce regulatory burden, the CFPB’s special status makes it, ironically, likely to be the first regulatory agency that is scaled back. Others may follow, but not before 2018.

The more normalized (by historical standards) interest rate environment and the promise of more judicious regulation could be enhanced by a stronger economic environment. And know that banks are most sustainably influenced by the presence (or absence) of a growing economy, not just rates and regulations. This is the area to focus on in the medium term.

On balance, if higher deficits can somehow be avoided/managed, expectations of a more business-friendly economy should, even in the short term, improve levels of investment. And that greater investment should help banks see somewhat increased loan demand.

On balance, the commercial opportunities should offset these swings for diversified local institutions and therefore on balance 2017 should be a good year for banks, leading to an even better 2018 — if the economy follows suit.

Cyber

Stacey Smith, executive director, Cybersecurity Association of Maryland Inc.

Cybersecurity damages continue to mount, with Cybersecurity Ventures predicting annual global cybercrime costs reaching $6 trillion by 2021 and global cybersecurity spending for government and commercial sectors to exceed $1 trillion for 2017–21; additionally, the 2017 federal budget for cybersecurity represents a 35% increase.

Maryland’s government contractors will enjoy robust growth in 2017 — if they can meet staffing needs. Commercial business sectors are increasing cybersecurity spending and more Maryland cybersecurity companies will turn their attention to that sector. Strong growth locally is expected in numerous niches, including the Internet of Things, mobile security, security awareness, insider threat, predictive analytics and forensics. And there’s substantially more demand for cybersecurity insurance and legal services.

Sales, workforce and business financing needs for Maryland’s cybersecurity companies will continue to be supported by tax incentives, funding, business growth programs and resources offered through the Maryland Department of Commerce, TEDCO, the tech councils, Startup Maryland, incubators and accelerators in the state, including the Chesapeake Innovation Center, the new cybersecurity-focused Startup Studio in Maple Lawn, DataTribe and more.

In 2016, the industry enjoyed an increase in [business-to-business] partnerships that were developed among Maryland’s cybersecurity product and service providers, and the organization expects to see more new partnerships in 2017.

Increased collaboration will also extend to the state’s technology and business organizations, starting with the Maryland Cybersecurity Stakeholders Roundtable, in January; the efforts of the Maryland Department of Commerce, the Maryland Chamber of Commerce and others throughout the year; various organizations partnering with the National Cybersecurity Center of Excellence and Better Business Bureau on cybersecurity programs to educate businesses; and the Fort Meade Alliance, to introduce college students to cybersecurity careers.

Entrepreneurship

Mike Binko, founder, Startup Maryland; CEO/president, Kloudtrack; and angel investor

Maryland is open for business and is a haven of innovation and entrepreneurship. The pulse of the innovation and entrepreneurial ecosystem in Maryland and the mid-Atlantic is as strong as it has ever been, if not stronger. Recent developments have provided the state startup community a perspective on the emerging ventures that are driving innovation, workforce and economic development.

What we have observed more keenly in 2016 is the emergence of several new industry sectors and innovation categories that are somewhat unique to Maryland and particularly the central portion of the state, encompassing Anne Arundel, Baltimore, Howard, Montgomery and Prince George’s counties.

These communities have long been stalwart drivers of government information technology, health care, life sciences national security and education innovation. More recently, sectors including cybersecurity, cloud computing, critical physical systems (CPS), autonomous systems, Internet of Things/Everything (IoT/IoE) and sustainability (primarily around the Chesapeake Bay watershed) have emerged as driving factors for the future of the region.

Institutions, including more than 10 leading four-year academic campuses, Fort Meade, Patuxent River Naval Air Station, NIST, NIH, USDA, NASA-Goddard, National CyberSecurity Center of Excellence, TEDCO, the Maryland Department of Commerce and a host of incubators/accelerators are breeding and supporting a diverse pallet of economic potential.

Celebrating these innovation categories, and the entrepreneurs spawning and growing these ventures, is the starting point for keeping them here in the region after they develop. It’s all about the key tenets, or the “Four Cs ” — celebration, coaching, curation and capital — guiding these founders and their ventures into pathways for resources and success. The state tech tribe looks forward to expanding these efforts in 2017 and welcomes supporters from all perspectives to get more involved in the effort.

Education

Joe Fisher, founder and CEO, First Generation College Bound, Laurel

As we know, the cost of attending college has risen markedly over the years. Now that the election is over, we know that various politicians have made many promises, including a vow to make attending college more affordable, or even free. That raised the hopes of many prospective students, as well as some concerns.

There were many students (and parents) who hoped that free college would become a reality, but those hopes were dashed with the outcome of the election. Therefore, that’s on hold. So, should you or your children put off pursuing a college degree? The answer is no.

Just as most people shop for household goods, clothing and others essentials they can afford, you should do likewise when it comes to paying for your child’s (or your own) education. Research the cost of the college your child plans to attend and begin with the local community colleges. They should be at the top of your list.

Start by applying to the college(s) that meet your academic and financial profile — not because they are the rated best colleges, but because they work for you. Then file the Free Application for Federal Student Aid, as it will provide the Expected Family Contribution (EFC). The EFC is the number that colleges use to calculate financial aid and is based on a student’s (or parents) financial circumstances. This is something most students and their parents don’t understand, though it offers a realistic picture of what is affordable.

As we know, student loan debt is become a major economic issue. While free college is several years away at best, you can still coordinate a college search with an affordability mindset.

Financial

Robert Carpenter, president and CEO, BWFA Financial Advisors

The current economic expansion is 90 months old, more than twice the duration of every other expansion since 1900; this bull market is only three months from its eighth birthday, a milestone reached only once since World War II. But bull markets don’t die simply of old age; they die of fear — of recession. So, does this bull still have room to run?

With that in mind, here is something to think about: Each of the 10 Republican presidents since Teddy Roosevelt endured a recession in their first term in office, with nine of them witnessing the recession’s start within their first two years in office. Today’s stock prices and, more importantly, valuations are at highs, while rates and inflation remain near historic lows.

The natural question is: Will they level off in 2017? Our baseline forecast assumes modest Gross Domestic Product (GDP) growth and stock-price appreciation, setting our 12-month target for the Standard’s & Poor’s 500 at 2,375. Therefore, we would overweight U.S. stocks, underweight mid- to long-term bonds and, where appropriate, look for opportunities internationally. While the market has moved in anticipation that the new administration will focus on reducing taxes on corporations as well as individuals, we agree this should increase economic growth and spending in the U.S.

The risk of recession looks low. Look for the real GDP to expand by 2.3%–2.6% in 2017, helped by gains in consumer and capital spending, as well as the expected increase in infrastructure spending. The job market will likely remain strong, with the unemployment rate averaging 4.7% by the fourth quarter of 2017, and wages growing at a 2.8% annual rate. With fatter paychecks, consumer spending will likely fuel growth, helped by housing market strength. Inflation should remain subdued with core CPI [Consumer Price Index] rising by 2.3% on a year-over-year basis by the fourth quarter.

Health Care

Maura Rossman, health officer, Howard County Health Department

The continued rise of opioid-related deaths continues to be a huge challenge, and the increasing trend of deaths related to substance use disorders will remain a concern in Howard County and elsewhere. According to state Department of Health and Mental Hygiene Vital Statistics Administration data, between 2007 and 2016 the number of unintentional intoxication deaths in Maryland increased more than 200%. Between 2008 and 2014, the number of county residents who sought treatment in emergency departments for drug and alcohol related problems increased 55%, and total deaths increased almost 50%, with two-thirds of the deaths heroin-related. Expanded access to treatment and support services will become a priority in an effort to provide those affected by alcohol and drug addiction the care they (or their loved ones) need to successfully achieve recovery and well-being.

Affordable health care is another topic of utmost concern. Access to publically-funded insurance will be debated and discussed at the national and state level. Should the Affordable Care Act (ACA) be repealed, many low-income individuals and families, people with disabilities and seniors with dual coverage (Medicare and Medicaid) will be without health care coverage. Methods to create a more cost-effective and efficient health care delivery model will be designed and piloted to improve population health outcomes.

Moving forward, public health, hospitals and medical providers will partner to focus on social determinants of health, or the factors (other than the traditional health system) that significantly contribute to an individual’s and community’s health. These factors, which lead to disease and premature death, include social and environmental factors like housing, education and transportation, as well as behaviors like physical activity, smoking and diet.

Lodging

Lou Zagarino, president and CEO, Whitehall Management Group

Demand for hotel rooms in Anne Arundel and Howard counties will remain strong for 2017. Current high occupancies are expected to decrease slightly, though this should be offset by rates that are expected to grow from 2% to 4%. Both average rate, as well as revenue per available room, should increase approximately 3%.

While cost of borrowing is still at very low levels, construction of new hotels will increase somewhat nationally. New construction and room supply in our area is incrementally above the national average, with several new properties hitting the market in the next 12 to 18 months.

The recent interest rate increase of 25 basis points should have no effect on hotels in the planning stages or in the pipeline, though it could dampen future activity. Supply for the two counties will increase up to 4%, which will result in a statistical room demand decrease, in the short run, until these properties are absorbed.

The Airbnb segment continues to grow and bite into the traditional lodging market, nationally and locally. Estimates are that three to five occupancy points are occurring in this segment that go unreported, as well as unregulated, though future legislation is underway. Taking this issue into consideration, we believe our business is actually increasing, but reported numbers show virtually flat results.

A strong driver of hotel demand continues to be BWI Thurgood Marshall Airport. Having increased both passenger count and new routes, it has set growth records every month for the past couple of years. Particularly strong international growth has significantly fueled the tourism industry. Now, more attention needs to be paid to certain international markets, where there have been significant declines in certain markets of 50% to 70% travel, possibly due to friction within the U.S.; hopefully, this is just temporary. Another area of concern remains the profitability of hotels, given labor cost and the effects of minimum wage legislation.

Legislative

Christine Ross, president and CEO, Maryland Chamber of Commerce

To make Maryland attractive to businesses, it’s important to keep a close eye on 2017 General Assembly issues, including mandatory paid leave, income tax credits and liability.

Under last year’s mandatory paid leave bill, employers with at least 15 employees would be required to provide paid leave to anyone who worked eight hours a week; some part-time workers could accrue seven full paid days. If the bill returns, it can be improved with a higher number of worked hours, a maximum of five full days paid leave and a 50-employee minimum trigger for consistency with existing standards. The state law should preempt local law.

The governor and lawmakers seem to recognize that the business community’s concerns with last year’s bill, and that the costs, requirements and penalty provisions would hurt small businesses. Employers should have the right to determine benefits for their employees, but the business community can work to minimize a bill’s harm.

To encourage growth, look for the business community to support proposed income tax credit increases for qualified research and development expenses, and for hiring eligible interns.

Watch for moves toward mandatory unitary combined reporting. Unitary combined reporting essentially applies state income taxes to earnings outside of Maryland, forcing multi-state businesses to pay taxes on the same income multiple times, which would diminish Maryland’s lure.

Additionally, the chamber will track bills that may remove caps on punitive damages for personal injury or death, or change the “actual malice” standard, requiring litigants to prove intent to harm. Such moves, if they happen, would create dangerous precedent for employer liability.

The best way to encourage a strong business environment for employers and workers is to give businesses more reasons to call Maryland home.

Manufacturing

Mike Galiazzo, president, Regional Manufacturing Institute of Maryland

Today’s next generation manufacturing movement is called the 4th Industrial Revolution and is generally known as industry or manufacturing 4.0, and it’s traveling along the D.C. to Baltimore Corridor. Manufacturing 4.0 is achieved when the physical aspects of manufacturing are connected to cybersystems, the Internet of Things and Big Data to create more efficient and effective business operations.

Given the number of tech companies in the D.C. to Baltimore Corridor that are cyber- and information technology-related, manufacturers can more easily find partners to supercharge efforts to go down the road to manufacturing 4.0.

The corridor has local government leaders who have made advanced manufacturing a priority. New technologies are abundant in the area and are driving new manufacturing models in the D.C.-Baltimore Corridor: Local Motors is 3-D printing cars, Product Support has state-of-the-art machining capabilities, Thorlabs is a national leader in optomechanical components and test instrumentation, Mobern Lighting is producing energy-efficient products, Holmatro has advanced manufacturing operations, Zentech is a leader in electronic components and Northrop Grumman is Maryland’s largest manufacturer.

Baltimore City has just announced the launch of the Mid-Atlantic Minority Manufacturing Center, and Under Armour’s Kevin Plank is bringing manufacturing 4.0 to Port Covington.

The outlook for manufacturing in the Corridor will be even brighter, considering legislation being developed in Annapolis. Gov. Larry Hogan’s team is working on a bill to significantly help manufacturing across the state, to include tax incentives for growing companies and those relocating to Maryland, accelerated depreciation, workforce training funds and [research and development] tax credits. The right incentives, the elimination of barriers to growth and manufacturers who embrace 4.0 approaches equal a prescription for success for the Corridor.

Small Business

Steve Umberger, director, Baltimore District Office, Small Business Administration

Exciting developments are on the horizon for Maryland’s small businesses. In recent months, consumer spending has been up, and that is expected to continue through 2017. This means more money spent locally for goods and services, from dinners out to home improvements. One thing that we all need to understand is that entrepreneurs truly drive our nation’s economy, and we all need to do our part and shop local.

Lending continues to be a bright spot for small businesses. The SBA Baltimore District Office completed another great year in small business lending during fiscal 2016, with 638 Maryland entrepreneurs receiving financing valued at more than $231 million.

So know that lenders will lend, but as we’ve reported before, also know that they want to see a solid business plan. It may seem a daunting task to build one, but that’s what will serve as your road map to success and is well worth the investment of your time.

The new year is a prime time to do a little entrepreneurial housekeeping. Review your marketing plan to make sure you have a mobile-friendly web presence; increasingly, we are searching and ordering while waiting in line or between appointments. Furthermore, now is the time to create a disaster plan, if you don’t already have one. Sadly, last summer we experienced devastating flooding in the area that affected our friends and neighbors. We all need to plan now for the unexpected.

Government contractors should see increased opportunities, given the intentions for infrastructure improvements promoted at the state and at the local levels. This should affect traditional contractors for roads and building improvements, but also within the cybersecurity arena.

Transportation

Greg Pecoraro, executive director, BWI Business Partnership

Central Maryland continues to face significant transportation challenges around the region and its major economic engines — BWI Thurgood Marshall Airport, Fort Meade and Arundel Mills. Even as the state struggles to fund and build improvements, a recent report by the Baltimore Metropolitan Council identified the area’s worst bottleneck for work traffic as the interchange at I-95 North and Route 100, with several other local hotspots in their top ten.

Self-driving cars may come to local highways if U.S. Department of Transportation approves the state’s application to allow testing of autonomous vehicles in the I-95 Corridor. Marylanders could share the roads with self-driving cars on I-95, U.S. 1, U.S. 40 and the Inter-County Connector, as well around BWI Thurgood Marshall Airport and the Port of Baltimore.

The new year may bring improved transit service, as the MTA’s BaltimoreLink program comes fully online. It expects to provide improved service quality, easier access to high-frequency transit, better bus and rail routes connections, and better alignment between transit routes and employment centers. Additionally, better connections for the region’s major employment centers to rail lines is planned.

Additionally, local leaders and organizations are seeking improvement to the MARC Service’s Camden Line between Downtown Baltimore and D.C.’s Union Station. Service is limited and only available during morning and evening commute times, but an expanded schedule would better serve the region.

Transportation issues will be high profile in the upcoming session of the General Assembly. While administration and legislative leaders are due to square off on some issues, other promising reforms from last year, including the elimination of the state’s unique farebox recovery requirement, could bode well for innovation in transit programs for the future.

Comments on this entry are closed.