It wasn’t supposed to be this good. By December 2015, the Federal Reserve had begun to ratchet up interest rates and borrowing costs in an effort to normalize monetary policy and head off emerging inflationary pressures. The prior year, unemployment had begun to dip to the point that workers across the wage spectrum were beginning to experience chunkier wage increases. The combination of ongoing job growth and faster wage increases helped perpetuate an economic expansion that had begun during the summer of 2009.
Ultimately, the Federal Reserve would raise short-term rates nine times between December 2015 and 2018. Messaging from Federal Reserve Chairman Jerome Powell and others indicated that further rate increases were forthcoming. Coming into 2019, unemployment was approaching a 50-year low—a low at which it presently sits (3.5 percent to end 2019). Based on basic economic logic, this was supposed to generate faster wage growth and additional inflationary pressure, inducing the Federal Reserve to further bolster borrowing costs. By late-2018, the average interest rate on a 30-year fixed rate mortgage had already reached 5 percent, resulting in a precipitous decline in owner-occupied housing market activity. The expectation was that 2019 would be even more problematic.
At the start of 2019, nearly a quarter of economists surveyed by the Wall Street Journal predicted that a recession would occur at some point during the year. At the time, it seemed like they were correct. The U.S. was manifesting substantial indications of both slowing and vulnerability.
The economy was adding an average of 163,000 net new jobs in the first half of the year. By comparison, the economy was adding 235,000 net new jobs over the same period in 2018. By mid-year, the economy was sending out signals of imminent recession, with the yield curve inverting and financial markets gyrating.
Then the unexpected occurred. Rather than pick up, inflation dissipated, in part because of a weakening global economy. Many factors have been at work. For instance, China began to expand at its slowest pace in three decades, laying low the Asian economy and nearly driving Germany into recession. Economies in Africa and Latin America, increasingly reliant on Chinese investment, also began to languish.
The result was that rather than raising rates, the Federal Reserve cut rates three times in 2019. Not only did this reduce borrowing costs, it sent Wall Street into a tizzy, with the S&P 500 expanding 29 percent last year. Consumer spending continues to be robust, in part because of low interest rates on consumer and auto loans. Job growth also remains strong, inducing more consumers to spend, supporting the creation of additional employment opportunities in the process.
Maryland Bounces Back
What a difference a year can make. At the start of 2019, the country was in the midst of the longest federal government shutdown in modern history. While the impact on the national economy was minimal, the same could not be said for Maryland, which due to its proximity to the nation’s capital, dedicates a large portion of its workforce and economy to federal agencies and government contractors.
As a result, job growth in the Free State was stagnant for much of last year as the state’s economy spun its wheels. But eventually, the state’s economy gained traction, and rather than spinning its wheels, the local economy jolted aggressively forward. The pace of job growth has been akin to the adrenalin pumping beauty of burning rubber in a Ford Mustang GT. Indeed, few states added jobs as robustly as Maryland during the latter stages of 2019.
The aggregate result of an awful first half of 2019 and a superior second half was that Maryland ranked right in the middle of U.S. states in terms of percentage job growth last year. Virtually all of the jobs added in Maryland on net have been added in the Baltimore metropolitan area, home to large-scale redevelopments in downtown Columbia, downtown Towson, Tradepoint Atlantic, and along the Baltimore City waterfront.
In total, the Baltimore Metropolitan Area added 23,600 jobs in November on a year-over-year basis. This translates into an increase of 1.6 percent, ranking the region 16th among the nation’s 25 largest metro areas, tied with St. Louis, MO. That ranking puts Baltimore ahead of other areas in the Mid-Atlantic and Northeast, including Boston (1.4 percent, 20th), New York (1.0 percent, t-21st), and Philadelphia (1.0 percent, t-21st). The Baltimore region’s unemployment rate of 3.2 percent ranks it 17th among the same group of metropolitan areas. In short, coronavirus notwithstanding, given Maryland’s newfound momentum, the outlook for the state’s economy looks promising for at least the initial half of 2020.
