Economic Viewpoint - Weakening rebound due in mid-2004

The RESI Maryland Leading Index grew at a scant 0.2 percent in August to a value of 152.32.

Despite the increase from July's value of 152.03, the Index remains below the value of the same month of last year for the second consecutive month.

Predictive of economic trends six to nine months ahead, recent index trends indicate a weakening of economic growth in mid-2004.

The variables contributing most to the index increase were drops in welfare caseloads and initial unemployment claims. While variables with the most negative impacts were the number of building permits and unemployment benefits paid.

Despite the slim margin, any gain in jobs is welcome news. Total employment registered a seasonally adjusted monthly gain of less than 1 percent, but remains above prior year levels for the fifth consecutive month. However, labor force data are not as reassuring as they appear.

Dropping 0.4 percent in August, the decline in Maryland's unemployment rate is more a factor of declining labor force components rather than improvement in the labor market. Maryland residents are faring better than their national counterparts, but a rebounding labor market is still elusive.

Dropping a seasonally adjusted 5.0 percent in August, initial unemployment claims at 21,079 are the lowest since December 2001. After steadily rising from mid-2000 to the end of 2001, the trend of initial unemployment claims in Maryland has flattened out, even showing a downward trend since March.

Complimenting the recent decline in initial unemployment claims is a decline in the number of people receiving Temporary Cash Assistance, Maryland's welfare program.

The amount of recipients receiving TCA dropped by 2,051 in August, representing a 2.8 percent decline, on a seasonally adjusted basis. That was the largest recipient drop and percentage decline since August 1999 and July 1999 respectively.

TCA represents an indicator of economic health experienced by the lower income population. They are typically the first to feel the effects of a declining economy, yet the last to benefit from an economic recovery.

Overall, growth in consumer activity slowed a bit in August as a result of mixed variables.

Perhaps a result of waning demand, or just a pause in activity, sales of new and used automobiles experienced their sharpest decline since February, falling a seasonally adjusted 4.9 percent and 8.4 percent respectively.

Since sales have been strong for most of the year, annual growth remained positive for both types of auto sales.

After five consecutive months of growth, the number of homes sold in Maryland declined a seasonally adjusted 2.2 percent to 7,380. In spite of the drop, home sales were up 11.5 percent from August of last year.

Foreshadowing the possibility of a continued softening in home sales, the number of homes pending sale dropped by 4.9 percent to 7,821, but still remain above last year's level of 7,325.

Despite the drop in sales activity, prices of homes continue to climb signifying high demand. The average homes sales price in Maryland rose in August a seasonally adjusted 0.9 percent to $246,008, and the median homes sales price rose 2.7 percent to $189,992.

Building permit data followed the trend in homes sales data with the number of residential building permits declining a seasonally adjusted 12.5 percent in August, while the value of residential building permits increased a seasonally adjusted 2.0 percent.

John Hopkins is associate director of Applied Economics & Human Services at RESI Research & Consulting.

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