Md. recovery will be weak, expert predicts 

Posted: 7:13 pm Thu, November 5, 2009
By Nicholas Sohr
Daily Record Business Writer

CAMBRIDGE — A University of Maryland economist said Thursday he expects the economic rebound to be “weak” and fraught with challenges for businesses and consumers.

“Recovery has started, but it’s likely to be a very weak one, one that will have some pitfalls and stumbles along the way,” William Longbrake said during the Business Policy Conference held by the Maryland Chamber of Commerce. “The good news is the Maryland economy has not been hit as hard as the rest of the nation, and that continues to be the case.”

Longbrake is the executive-in-residence and senior policy advisor for the Center for Financial Policy at the university’s Robert H. Smith School of Business.

Stock market gains and the 3.5 percent growth in the nation’s gross domestic product, or GDP, in the third quarter are the latest signs of economic healing, but they may not be the solid indicators many hope them to be, he said.

Longbrake said he expects the unemployment rate in Maryland to eventually peak at about 7.5 percent, up from 7.2 percent in September, and retreat slowly because growth in GDP is too slow.

“Unemployment rate, rather than coming down quickly, will be very sticky at a very high level for a considerable time,” he said.

The economy is also faced with the tall task of replacing $787 billion in stimulus spending passed this year by Congress, which flipped a potentially negative GDP growth number into a positive one.

“If we don’t replace that stimulus with actual business expansion and consumer spending, then this 3½ percent number that looks good right now, and looks promising, will not look so good in a year or so in hindsight,” Longbrake said.

He pointed out flagging small businesses as a particularly worrying subset of the economy. Businesses with 20 or fewer workers make up about a quarter of the employment in the country, and accounted for about 40 percent of the growth from 2003 to 2007.

Businesses have scaled back borrowing, which has also hampered economic recovery, Longbrake said.

American consumers, too, are also reducing their debt, saving more and learning to deal with less disposable income than before. Longbrake said he expects the new frugal attitude to stick with consumers for the long haul.