Maine recovery may come sooner than previously predicted

Posted May 31, 2012, at 6:12 p.m.

The New England Economic Partnership said Thursday that Maine’s economy may show “signs of life” this year, with a possible jobs recovery to prerecession levels expected two years earlier — coming by 2015 instead of 2017 — than previously forecast.

The Maine part of the New England forecast, prepared by economist Charles Colgan of the Muskie School of Public Service, pegs the state’s swifter-than-predicted recovery on improving conditions nationally.

“The outlook for 2012 does show some growth for the first time, ending the year at about 598,000 jobs. This implies a growth of about 5,000 jobs on a quarterly basis over [the last quarter of 2011], though only about 3,000 jobs on an annual average basis,” the New England Economic Partnership report said. “Beyond 2012, job growth accelerates along with the national economy in 2013-2016 to a rate of 1 percent per year or more, a growth rate not seen in Maine in more than a decade.”

While the report noted Maine’s first quarter 2012 figures are “promising,” it cautioned that “first quarter promises have been broken in the past.”

In the analysis, the economists said that sectors such as manufacturing, construction, trade, transportation and utilities will recover jobs, but not enough to bring them back to prerecession peaks. Compared to prerecession levels, there will be net reductions in those sectors, as well as in government sector positions, the report said.

The group observed that the idea of a “structural mismatch” as an explanation for the lagging job recovery in Maine has an element of truth in it. It’s the general concept that Maine’s work force is strong in sectors that are growing slowly, or retracting, but weak in areas of growth.

“But it is in fact a very old story of changing from goods-related to service-related occupations, which has been an issue in good times and bad for 40 years,” the report continued. “This shift is made more difficult by the fast growth, sharp decline and slow recovery in construction jobs. But there are other job types, like office workers, where there have been major job losses and little to suggest a skills mismatch.”

All six New England states face this problem to one degree or another, Colgan told the Bangor Daily News. A priority for the state should be retraining workers and moving them out of traditional sectors into areas of growth, he suggested.

“Helping people find jobs, move out of careers in construction, is something the public sector has to help happen, partly to make sure there’s enough people to fill the new jobs when they do come; partly to make sure people have a future when the [old] jobs are not coming back,” said Colgan. “The need to do this is great, but the resources to do this from either the federal or state government are shrinking.”

The area that lost the most jobs in Maine through the recession was office workers, he said, followed by construction workers. The office jobs will come back as the economy rebounds, he said. But construction will remain low for a while because the state just doesn’t have the population growth to drive demand for construction.

One suggestion he offered was for the state to focus on developing an industry of repair and maintenance — a good area to help people who work with their hands make the transition from their former area of expertise to a new one, and also has some demand in the economy.

“Our increasingly technologically complicated society has all kinds of equipment that needs repair and maintenance,” said Colgan. “We’re drowning in stuff that needs to be fixed, but we don’t have the work force that really is specialized in doing that.”

In the last few weeks, Maine’s economy has been sized up by two national rating firms: Moody’s Investors Services and Standard & Poor’s. Moody’s affirmed the state’s Aa2 rating, but revised its outlook from stable to negative. Moody’s noted in its statement that Maine’s employment growth was for all intents and purposes flat in 2011, compared to a national growth rate of 1.1 percent. The agency also pointed to problems with Maine’s demographics, as well as potential issues with how cuts to state spending may affect specific parts of the economy.

Standard & Poor’s, however, upped its outlook for Maine’s financial and economic health from negative to stable. S&P cited strong fiscal policies and practices, moderate general obligation debt level and improving state economy as reasons for the favorable rating. The credit rating agency also noted the state’s efforts to control spending on MaineCare, which is the state’s Medicaid program.

On a national level, New England Economic Partnership said the U.S. economy grows at a “solid if less than exciting pace.”

Real gross domestic product growth remains near 2.5 percent annualized, which is slow, but enough to expand employment by more than 2 million jobs this year and next, the group suggested.

“And with slow growth in the labor force, this will be sufficient to push the U.S. unemployment rate below 8 percent by the end of 2012, and closer to 7 percent by the end of 2013,” the group suggested. New England Economic Partnership said the foreclosure crisis at home and the debt troubles in Europe still threaten to disrupt the recovery.

“In order for even my weak forecast to come to pass, we’re going to need a mass outbreak of wisdom in Washington and Europe,” said Colgan.

In particular, he pointed to current federal law that includes tax increases and spending cuts that will “put the U.S. economy back into severe recession in 2013 — if the president and Congress don’t act.”

“Right now, there is a recession built into current law, and nobody’s doing much about it,” he said.

Regionally, the group said New England’s economy will continue to grow slowly, with employment growth averaging 1.3 percent annually and overall economic growth averaging 2.8 percent per year through the end of 2016.

“The expectation is that the region will not return to its prerecession employment level until 2015,” the group wrote.

In addition, New England Economic Partnership projected that weakness in the housing market will continue to slow the region’s economic recovery.

The group said declining or flat median housing prices are expected to continue in New England until mid-2013, and then increase only modestly.

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