Maine’s economy will continue to ride a growth wave into 2020, countering last year’s rife rumors of a pending recession, experts said.
And while they don’t expect a recession this year, ongoing international trade conflicts and high tensions in the Middle East could cast a shadow of uncertainty on the economy, including affecting oil prices for homes and prices at the gas pump.
“The Federal Reserve Bank has been doing their best to keep us out of a recession,” Amanda Rector, economist for the state of Maine, said referring to the three interest rate cuts in 2019. “Barring changes in the Middle East or tariffs, this should be another year of growth, although there is a slowing trend.”
The interest rate cuts made borrowing less expensive. Some Mainers refinanced their homes, while others consolidated debt, giving them more cash on hand to fuel the economy.
Economic growth also tends to slow in presidential election years, she said. Businesses may hold back investments until they know which candidate will be setting future policies.
Michael Hillard, an economics professor and director of the food studies program at the University of Southern Maine in Portland, said the almost 11-year business expansion in the United States is setting a record length.
“The question is when it will come to an end,” he said. “It could be a scenario where the coyote chases the roadrunner off a cliff.”
But so far, there are no signs of an abrupt end to the current cycle. The low unemployment rate is giving workers more opportunity, he said.
“Odds are a record-length expansion will continue through next year versus a recession. The economy might be strong into 2021,” Hillard said. “But I’d be surprised if there wasn’t a recession after that.”
The bones of Maine’s economy remain solid.
The state’s unemployment rate dropped to a seasonally adjusted 2.8 percent last November, down from 3.5 percent in November 2018 and below the national average.
Maine’s Department of Administrative and Financial Services said the state ended the fiscal year ending June 30, 2019, with an unappropriated surplus of $167.8 million, down slightly from the $175 million the year before under the administration of Gov. Paul LePage.
The state transferred $4.5 million into the property tax relief fund for residents, triggering a payment by this March of at least $100 to the property tax payer for each homestead in Maine.
The department also transferred $18.1 million to the state’s budget stabilization fund, the so-called rainy day fund that acts as a savings account for emergencies. The fund now stands at $236.9 million.
Maine’s two-year budget is almost $8 billion, with $3.98 billion for fiscal year 2020 and $4 billion for fiscal year 2021. That’s up from the $7.4 billion in fiscal years 2018 and 2019. The state’s fiscal year runs from July 1 to June 30.
And on Jan. 1, the minimum wage rose for the fourth consecutive year to $12 per hour, the result of a referendum in November 2016.
“The economy is now in a ‘Goldilocks’ stage, where everything is an upside,” said Sheena Bunnell, professor of business economics at the University of Maine at Farmington. “The economy is fundamentally strong and consumer optimism is up.”
That’s good news for many Mainers.
“Mainers are spending more,” said Bob Montgomery-Rice, president and CEO of Bangor Savings Bank. “This last year we saw, on average, 13 percent growth in debit card transactions, both in the number of transactions and their amount.”
Another plus is the high degree of debt consolidation by consumers, which he related to the Federal Reserve’s rate cuts.
“Our growth this year is associated with consumers and businesses still being healthy,” he said. “We’ll have our largest growth in residential lending this year.” The bank’s fiscal year runs from April 1, 2019, through March 31, 2020.
Bangor Savings has $4.75 billion in assets and expects to top $5 billion after its planned merger with Damariscotta Bank & Trust is completed later this year. It also expects to have 1,000 employees by year’s end, up from 950.
He said the lower borrowing rates from the interest rate cuts had many people buying or refinancing homes or consolidating debt. That also gives Mainers more cash on hand.
“Our residential lending from April 1 through Dec. 31, 2019, was more than $500 million,” he said. That’s up 20 percent over the entire 12 months of the previous year.
“The consumer has fared well,” Montgomery-Rice said. “But the average Mainer should pay attention to the Middle East and oil if they are on a tight budget. Everyone in Maine drives some distance.”
For Shanna Cox, the recently hired president and CEO of the Lewiston Auburn Metropolitan Chamber of Commerce, trying to alleviate the workforce shortage in the Lewiston-Auburn area will be a key goal.
“People are looking at whether this is a year to start a business,” she said.
Cox said at least one new restaurant in Auburn delayed opening and then expanding its hours because it had difficulty finding enough staff.
When Gov. Janet Mills released the state’s 10-year economic plan in December, she cited three main goals over the next decade. The most ambitious is to grow Maine’s workforce by 75,000 people. That runs counter to the demographic trend in Maine, which is the nation’s oldest state by median age. As things stand now, the workforce is expected to contract by 65,000.
There are some positive signs, however, as U.S. Census Bureau figures showed a bump in the state’s population in 2019, attributable largely to immigrants.
“By the end of December, Maine had seen a pretty good increase in total population migration into the state,” Rector said. “That’s a recent positive for Maine.”
This year, Maine and other states will see a temporary boost in job figures because of the large number of people being hired to help with the 2020 census.
“The U.S. Census Bureau hires a lot of temporary workers from April to July. The employment data shows a big spike in the second quarter,” Rector said.
She said the bureau expects to receive 14,000 applications in Maine for jobs paying $18 to $20 per hour. Rector said the bureau had to increase rates twice in Maine to lure in enough applicants.
The economists also see promise in business sectors such as cannabis, value-added food and experiential tourism. Maine’s forests, natural beauty and scenic appeal could boost experiential tourism.
“Rather than buying goods consumers are more into experiential gifts,” said the University of Maine’s Bunnell.
Both Bunnell and USM’s Hillard see value-added food production as having long-term growth promise because Maine has the space and resources to grow and process food.
Hillard sees cannabis as a modest growth market short term as the first recreational marijuana is readied for legal sale later this year.
The state’s Revenue Forecasting Committee estimated gross sales tax revenue from marijuana sales of $2.2 million in 2020 and $8.4 million in 2021. It also projected gross sales tax revenue of $11.8 million in 2022 and $16.6 million in 2023.
Revenue from the marijuana excise tax, which assumes sales will start in 2020, is $2.2 million in 2020, $8.4 million in 2021, $11.8 million in 2022 and $16.6 million in 2023.
“Cannabis could create only a couple hundred jobs this year,” Hillard said. “But in three to five years it could create thousands of jobs.”
Rector said that the indicators for 2020 are that it will be a year of growth.
“But a lot depends on the national and international situations and trade,” she said.