While that was a bit unsettling, it was also confusing. Employment statistics characterizing performance in the Baltimore area, the state’s largest economic constellation, were more than decent, implying that the rest of the state was amid an employment recession. Based on a host of other indicators, including those related to home sales and prices, that seemed unlikely. The conclusion many reached was that eventually Maryland’s employment numbers would improve to better match perceived reality.
That’s exactly what occurred. Solid job growth during the final months of 2018 produced what turned out to be a fine year for Maryland’s labor market. Between December 2017 and December 2018, Maryland added 50,900 net new jobs, which represents an increase of 1.9 percent in statewide total nonfarm employment. This pace of job growth ranked Maryland a solid 21st in the nation, tied with perennial high flyers Oregon and Virginia. Maryland’s rate of job growth was also slightly better than the national average of 1.8 percent.
The momentum that characterized 2018’s latter stages should presumably have set the stage for strong economic performance during the early weeks of 2019. But then the federal government initiated its longest shutdown in history—one that began in very late 2018 and then lasted approximately 35 days, engulfing January in the process.
Nationally, the federal government shutdown brought with it much media attention, but it did not have an especially large-scale economic impact. According to the Congressional Budget Office, the five-week federal shutdown cost the economy $11 billion—enough to reduce first-quarter growth by about 0.4 percentage points. But less than a quarter of that total is permanently lost. Much of the impact is recoverable as federal workers are compensated for the efforts they supplied during the shutdown.
While media reports managed to identify indications of meaningful losses, including among certain government contractors and people who lost the opportunity to purchase homes, many headline economic metrics appear virtually untouched. As an example, according to the Bureau of Labor Statistics (BLS), the U.S. added 304,000 net new jobs in January, smashing estimates that suggested that the nation had added an unremarkable 165,000 net new positions during 2019’s initial month. Meanwhile, financial markets continued to surge higher during the shutdown, gaining back much of what had been lost during 2018’s tumultuous final quarter.
Maryland is Different
While the national government fared reasonably well through the shutdown, Maryland is decidedly different. Here, the federal government represents the leading source of economic strength, whether due to: 1) direct agency employment at places like the National Security Agency, Patuxent River Naval Air Station, Food & Drug Administration, or National Institutes of Health; 2) federal government contracting, whether military or civilian in nature; 3) other forms of federal spending, whether to fund research at Johns Hopkins, help rebuild bridges, or maintain Fort McHenry. Given Maryland’s close-knit affiliation with federal activities, logic dictates that the impacts of shutdowns are simply larger here.
Nationally, the shutdown resuled in the furlough of 380,000 federal workers. According to BLS, 144,800 federal workers lived in the Free State, which represents roughly five percent of the state’s workforce. While not all of Maryland’s government workers were furloughed, many were. Others were forced to stay at home and wait for their paychecks. The implication is clear—while the federal shutdown may not have been a major impact nationally, it must have been one in Maryland.
It will be several months before economists and others know the complete measured impact of it in Maryland. But for better or for worse, there have been others, and those experiences can supply insight into the likely impacts of the most recent episode.
For instance, in October 2013, a dispute regarding funding for the Affordable Care Act (ACA) produced a government shutdown spanning 16 days. House Republicans had offered to close a “funding gap” by stripping certain ACA measures. Senate Democrats balked. Versions of the bill were sent back and forth between Congress’ upper and lower chambers, but the two sides fell short of resolution. More than 800,000 federal employees were furloughed, and 1.3 million worked without pay.
During the 12 months leading to the 2013 shutdown, Maryland averaged 1,433 net new jobs/month. During the 12 months following it, monthly job growth averaged 2,692. This is not to suggest that the shutdown helped Maryland’s economy. Rather, it strongly suggests that before, federal government outlays may have been softening as the conflict grew. The resolution of that conflict may have set the stage for more dynamic economic performance in the Free State.
Something similar happened during the back-to-back federal shutdowns in 1995-96. During the 12 months prior to the shutdown, Maryland’s monthly job growth averaged 2,225/month. During the 12 months after the shutdown, it averaged 3,392/month.
This doesn’t mean that Marylanders should look forward to and embrace federal shutdowns. What it suggests is that the local economy tends to struggle when federal policymakers begin entering a period of intense disagreement. The resolution of policymaking disagreements, by contrast, appears to help catalyze Maryland’s economic performance.
