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After years of slow growth in Maine, 'it will probably feel like more of the same,' one expert says.

By EDWARD D. MURPHY February 24, 2008

 

 

 

Maine and the country are waiting for the other shoe to drop.

It could be signaling a recession or, more optimistically, one averted by quick interest rate cuts and an economic stimulus package with rebates to get people spending.

Laurie Lachance, a former state economist who now heads the Maine Development Foundation, said that, for Maine, either outcome might be more like a slipper dropping than a shoe.

"The reality is that Maine has been growing very slowly the last five years," Lachance said. "Unless we go into a major dip, which I'm not anticipating, it will probably feel like more of the same -- maybe more of a pinch to it."

Lachance and other economists say this recession, if it comes, is more likely to resemble the mild 2001 decline than the one that hit Maine and New England especially hard in the early 1990s.

Still, Maine's recovery from the 2001 recession, mild as it was, has been slow. Lachance pointed out that if you cut out the growth from an economy that's barely expanding to begin with, it's less likely to be felt as strongly as in areas where the economy jumped during the last seven years.

Other economists concur.

Charles Colgan, a professor at the University of Southern Maine's Muskie School of Public Service, said he believes a recession is likely but it will be mild and the recovery will begin later this year. Beata Caranci, director of economic forecasting for TD Bank, the parent of Portland-based TD Banknorth, said she's predicting continued slow growth, but no recession.

However, Caranci said she wouldn't be surprised to see the economy contract slightly for the first half of the year. That would meet the technical definition of a recession, which is two successive quarters of declines in the country's output of goods and services.

Lachance said that even though she's not predicting a sharp recession, there are some factors that cause her to worry that an economic slowdown this time might be a little more troublesome for Maine.

She said Maine has been slow to build the fundamentals of a stronger economy, such as making the state more business-friendly with programs to help control the high cost of health care and lower taxes. Other factors are largely beyond the state's control, such as high oil prices, which leave homeowners with less disposable income after paying to heat their homes. Higher fuel costs also drive up prices on goods moving in and out of the state, since Maine is heavily reliant on trucking, she said.

"That's a lot of money going out of state," Lachance said of oil prices. "It hits a state like Maine harder. It's affecting consumers, everything from taking a vacation to buying a new car to going out to dinner at night."

That leads to concerns that this recession, if it occurs, will be more consumer-driven than the 2001 dip. Seven years ago, consumers continued to spend through the recession, with low interest rates making it easy for people to tap into the equity in their homes through refinancing. Now, housing values are largely flat, and tighter credit standards will make it harder for homeowners to refinance.

With consumer spending accounting for about two-thirds of the national economy, if shoppers cut back, a recession would likely be deeper and longer.

Contrary to national trends, however, the housing market has shown some resiliency in Maine, especially compared with parts of the country where foreclosure rates have shot up. But, Lachance said, house prices in Maine remain beyond the financial reach of residents with average incomes and the economy would be hindered further if prices drop and the market stagnates.

And even a slowdown in the Maine housing industry has hit the construction industry hard. That will invite comparisons with the recession of the early 1990s, when home prices dropped and the housing industry's problems exacerbated...