Richmond Fed president: Maryland lags nearby states in economic recovery

Correction: An earlier version of this story misstated the number of jobs Maryland added in November. This version has been corrected.

As the regional economy inches forward, Maryland’s recovery seems to be trailing those of nearby states, according to Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond.

“Maryland seems to be lagging in our district. I’m not quite sure we can put our finger on it,” Lacker said Friday at an appearance before a group of local bankers in Baltimore.

As he offered his first take on how the economy will shape up in 2014, Lacker said it is not entirely clear why Maryland is struggling, although he said he has heard from the local business community that the state’s regulatory and tax changes have had a dampening effect.

Lacker said his assessment was based on employment growth and other economic indicators. In November, Maryland added 8,900 jobs.

Still, Lacker said he saw opportunity for economic growth in the state in 2014 and beyond, especially in places such as the cybersecurity corridor that is emerging around Fort Meade.

“I’d expect continued growth related to that over the next several years,” Lacker said.

The Richmond Fed’s district covers a Mid-Atlantic area that includes Maryland, Virginia and the District. In the broader Washington region, Lacker said that the recent deal Congress struck on the federal budget is likely to bring local businesses a sense of certainty and clarity that they have recently lacked. Local contracting companies, in particular, spent much of 2012 wringing their hands about whether the automatic federal budget cuts known as sequestration would go into effect. In 2013, once the cuts went into effect, they dealt with further uncertainty as they faced a 16-day government shutdown and the prospect of an additional round of sequestration cuts.

With the new budget deal, “Agencies are going to know what they have to work with,” Lacker said. “And you’re going to be able to plan and work around things and not have to make sort of arbitrary decisions. And I think that will be good. And hopefully that lays the groundwork for a return to regular order in years ahead.”

Economists and local business leaders have echoed the notion that the budget deal brings a new clarity that might encourage companies to get off the sidelines when it comes to hiring or other strategic decisions.

“We’re released from the psychological constraints of a future shutdown,” said Stephen S. Fuller, the economist who directs the Center for Regional Analysis at George Mason University.

Lacker’s forecast for the broader U.S. economy in 2014 is a cautious one, even though some recent economic reports have provided reasons for optimism. Gross domestic product grew at a faster rate in the most recent quarter and consumer spending surged at the end of 2013.

Lacker predicts the economy will grow about 2 percent this year, a rate that is not far from what was recorded in the previous three years. That forecast, he said, was influenced by patterns he’s noted in the years following the Great Recession. Often, Lacker said, economists have observed spurts of stronger growth that prompt them to predict that the recovery is about to pick up steam. However, these waves of strength have proved to be fleeting, with an eventual return to a slow, steady pace of growth.

Lacker also noted in his outlook that he continues to observe “persistent cautiousness in household spending behavior” and that businesses are “quite reticent to hire and invest.”

Of Federal Reserve leaders, Lacker tends to be among those who are especially focused on keeping inflation in check. Although inflation has averaged about 0.9 percent over the past 12 months, Lacker forecasts that it will inch back up toward 2 percent in 2014 or 2015.

To read other local business leaders’ predictions of how the regional economy will look in 2014, visit capbiz.biz.

Sarah Halzack is The Washington Post's national retail reporter. She has previously covered the local job market and the business of talent and hiring. She has also served as a Web producer for business and economics news.
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