Commentary: MD Leading Index plunges 1.5%

RESI's Maryland Leading Index plunged 1.5 percent in February, with both weather- and non-weather sensitive portions of the economy exhibiting new and higher levels of distress. But it's important not to take the index this month so seriously.

The index only has February data with which to work, and reflects nothing about America's successful campaign in Iraq. It also doesn't show that various segments of the national economy improved in March, including various housing segments and retail sales.

That said, the index was as assured of its message and direction as it has been in months. Clearly, Maryland's economy has been deteriorating along with the nation's through the early portions of 2003. Just about the only variables that were up were the unemployment rate (from 4.1 percent on a seasonally-adjusted basis to 4.2 percent), initial unemployment claims and unemployment benefits paid. Of course, we're better off when these variables are trending lower.

There were plenty of variables trending lower in February, including new auto sales, residential building permits, home sales, Baltimore/Washington International Airport freight shipments, BWI passenger activity, average weekly manufacturing hours, used auto sales, department store tax receipts, durable goods tax receipts and total nonagricultural employment. Viewed collectively, it appears that the weather and other factors have conspired to ruin Maryland's first quarter from an economic growth standpoint. Marylanders can take heart in the fact that this was part of a national phenomenon, and that Maryland has held up under pressure much better than has the vast majority of American states. Last year, Maryland ranked seventh in the country in terms of the pace of job growth.

That type of out-performance will continue. The U.S. economy is still characterized by the prevalence of heightened federal expenditures and low interest rates. Maryland, as a federal contracting, federal employee-intensive state, is likely to continue to benefit from the elevated pace of federal spending.

Moreover, as an affluent state, low interest rates make more of an impact here as consumers are more likely to qualify for loans and as the state's disproportionate share of homeowners refinance and enhance their ability to spend. At least through the first quarter of 2003, the refinance boom appeared to be very much in place in Maryland.

As for future index readings, look for it to climb back toward respectability in March. As economists, we know that roughly 22 percent of the economy can be characterized as highly sensitive to the weather, but when it snows more than two feet in Maryland over a couple of days, that proportion skyrockets. Though the snow has long since melted, its frosty touch still grips the statewide economic data, and it won't be until May that we receive data from the post- thaw period.

Anirban Basu is a special consultant to RESI Research & Consulting, an economic research group based at Towson University in Baltimore County. Basu and RESI compile this data for The Daily Record every month. The group can be reached at www.resiusa.org.

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