Maryland’s Economy Lags Behind

There was a time when Marylanders could feel quite good about their economy. Even during the most recent economic downturn and its immediate sloppy aftermath, Marylanders could take some comfort knowing that the state’s economy was somewhat insulated from the worst possible economic outcomes by a still expanding federal government.

According to the Office of Management and Budget, 1987 represented the first year that federal government outlays came to exceed $1 trillion. That year, federal government outlays equaled approximately $1.004 trillion. By 2011, total federal spending totaled a whopping $3.603 trillion. Not adjusting for inflation, this represent more than 250 percent expansion in federal spending in 24 years. In inflation-adjusted terms, growth is approaching 100 percent.

Not surprisingly, economic actors in the Baltimore-Washington Corridor were among the primary beneficiaries. While much of the balance of the nation was left to wrestle with de-industrialization and globalization, many businesses in the Corridor could focus on deal flow emanating from a variety of rapidly growing federal agencies, including the National Institutes of Health, the Center for Medicare and Medicaid Services, the U.S. Department of Defense, the National Security Agency, and many others. Episodically, deal flow became even more active during periods of conflict associated with either nation states or non-nation actors and with the implementation of the latest round of base realignment.

Since 2011, federal spending dynamics have shifted dramatically. This has been driven by a combination of a perceived need to curb the size of annual federal budget deficits and by electoral outcomes. Republicans gained around 60 seats in the 2010 mid-term elections, with Tea Party-endorsed candidates accounting for 28 of those gains according to data compiled by Bloomberg. Many of these Tea Partiers came into office with an expressed desire to shrink the federal government’s reach.

The Budget Control Act of 2011 (BCA) followed shortly thereafter. The Act gave us both the failed supercommittee and sequestration. Because the supercommittee failed to agree to a $1.2 trillion deficit reduction package by November 23rd, 2011, sequestration was triggered, with the cuts beginning during the first quarter of 2013. Federal outlays declined in both real and nominal terms in both 2012 and 2013. By 2013, federal government outlays as a share of GDP had slipped below 21 percent.

The good news is that the state’s nonfarm employment growth has been reasonably steady and solid for the past two months. Maryland added 3,800 net new jobs in November after adding 2,800 jobs in October. However, between June and September, the state shed 8,700 jobs, the worst quarterly performance since 2009:Q3. Over the past year, Maryland ranked 46th in terms of percentage job growth, 45th if one excludes the District of Columbia. Government, manufacturing and information have all shed more than 2,000 positions over the past year. Education/health services (+7,000 jobs; +1.7%), professional/business services (+6,400 jobs; +1.5%) and financial services (+3,100; +2.1%) have led job growth.

In August, Maryland’s unemployment rate came to exceed the nation’s for the first time in 16 years (April 1998). According to the most recent available data for the country and for the state, unemployment stands at 5.6 percent. While Maryland may again lag behind the nation in 2015, economic conditions throughout the Free State should still improve throughout the year.