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Looking Ahead: Winter Is Coming

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Strong headwinds will slow U.S. growth and the federal budget process, and those forces could harm Maryland’s economy in the near-term.
The Trump administration, in its six month of office, has failed to produce any substantial legislation and has signaled its desire to pull out or renegotiate several trade agreements. The lack of legislative progress, especially in the areas of tax reform infrastructure spending and the Affordable Care Act (as of this writing), have created a climate of uncertainty in the broader business community in the U.S.
While there has certainly been a flurry of executive orders signed by President Trump, these likely will be overturned if a democratic candidate gets elected to president in 2020. For many firms, making long-term capital investment decisions on short-term executive orders is a non-starter. Many economists have revised their growth projections for the Gross Domestic Product downward in light of this, as well as the lack of legislative progress.

Continuous Growth
As of this writing, the U.S. economy has enjoyed eight years of continuous GDP growth and monthly job creation of about 175,000 jobs. Moreover, all of the economic indicators point to an economy that has recovered and is growing, albeit slowly compared to historical standards.
Housing prices have rebounded in most major metropolitan areas, interest rates remain low, energy prices are relatively low, median household incomes have risen for all household quintiles (bottom 20% to top 20%).
However, many regions in the U.S. have not recovered and, as manufacturing jobs and jobs requiring less than a college degree have disappeared, there are many parts of the U.S. that have not recovered since the 1990s. Finally, many homeowners have been shut out of the refinancing option due to the stricter lending requirements in place now.
For Maryland, which has about 5% of its labor force engaged directly with the federal government, as well as an additional 10% indirectly engaged to support the missions of the federal agencies and military installations, any budgetary cuts will have an adverse impact on the state’s economy. Maryland lost approximately 21,000 jobs due to the sequester and any future budget cuts could have a similar impact. Maryland is home to the federal headquarters of the Centers for Medicare and Medicaid Services (CMS), the National Institutes of Health (NIH), the Agency for Healthcare Research and Quality (AHRQ), the Health Resources and Services Administration (HRSA) and several other component organizations of Health and Human Services. If funding for health research and services are cut as proposed, many Maryland workers will lose their jobs.
During the past year, Maryland has gained almost 13,000 jobs in the professional, scientific and technical services and health care and social assistance sectors, and these gains could be in jeopardy if budget cuts get pushed through.

Defense Benefits
Although some aspects of Maryland’s economy are vulnerable to proposed budget cuts, the proposed increase in defense funding stands to benefit the state. Maryland’s 20 military installations power local and regional economies across the state and are well-positioned to take advantage of shifting military priorities.
For example, the military’s increasing emphasis on cybersecurity stands to benefit Fort Meade, located in Anne Arundel County, home of U.S. CyberCommand; and Naval Air Station Patuxent River, in Southern Maryland, is a leading center for the development of drones and other unmanned aerial systems.
While shifting budget priorities are never without casualties, Maryland is well-positioned to adapt to new industries and federal-level priorities. Limiting Maryland’s ability to prepare for new paradigms is the same uncertainty that affects companies and policymakers across the country.

Daraius Irani is chief economist of the Regional Economic and Studies Institute at Towson University. He can be contacted at 410-704-6363 and dirani@towson.edu.