🔒Glimmers of recovery spotted in N.E.

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All eyes were turned toward the threat of sequestration and the economy pitching off a looming fiscal cliff at a recent conference to forecast the region's economy.

But underneath the speculation over what Congress might or might not do, there was a consensus that New England's economy will continue its three-year creep toward recovery, with one major caveat: Politicians must find a middle ground solution that protects the economy from the full brunt of spending cuts and expiring taxes that otherwise will occur by Jan. 1.

The common denominator in the regional and state forecasts released on Dec. 6 by the New England Economic Partnership is succinct and unequivocal: Avoiding the fiscal cliff is the single biggest policy decision that would help the region's economy in 2013.

Charles Colgan, a University of Southern Maine professor who wrote Maine's economic forecast, offered his unambiguous conclusion that under the deep federal spending cuts called for in the sequestration portion of the fiscal cliff, "Maine's weak recovery to date would be completely reversed."

Using employment as one measurement of the fiscal cliff's impact, the NEEP economists concluded "all states in the region would be expected to suffer a percentage decline above the U.S. average of 2.03%" — with Connecticut facing the biggest projected drop at 2.5%, followed by Vermont and Rhode Island at 2.3%, Massachusetts at 2.2%, Maine at 2.1% and New Hampshire at 2.0%.

The NEEP economists predict the housing market could emerge as a relative bright spot in New England's regional economy, citing regional median housing prices that have been gradually increasing. If that trend continues, they suggested it will bolster "the construction industry and related industries, including retailers selling home supplies, landscapers and cable providers."

How Maine stacks up

NEEP's general forecast for the New England region as a whole provides these benchmarks:

• Slow regional employment growth averaging 1.5% per year. This is below the growth of 2% required to significantly reduce unemployment in New England. As a result, the region is not expected to return to its pre-recession employment level until 2015.

• Overall economic growth (i.e. regional gross product) averaging 3.3% per year over the forecast period, to 2016.

• Housing prices have begun to stabilize and slowly rise nationally and regionally. Increases in median prices are expected to be highest out to mid-2016 in Vermont (25.6%) and Massachusetts (25.5%). Rhode Island (14.6%) and New Hampshire (12.9%) are expected to have the slowest recovery in housing prices in the region.

Colgan's forecast for Maine, by comparison, notes the state has recovered only 17% of the jobs, or 5,000 of 28,000 jobs, that have been lost since mid-2008. "Since January 2010, the Maine economy has added only 115 jobs per month on average," Colgan wrote. "All of the growth has occurred in [the] private sector, which [has] added about 280 jobs a month."

Job losses due to the shutdown of the Brunswick Naval Air Station and a steady erosion of state and local government sector jobs were cited by Colgan as factors canceling out roughly 60% of the monthly job gains achieved by the private sector in the last four years. Colgan flagged manufacturing and professional and business sectors as "particularly troubling" and unlikely to generate new jobs in Maine in any significant way.

"The manufacturing sector is very unlikely to return to pre-recession employment levels," he wrote, noting that it now employs less than half the people it did 40 years ago. While the professional and business sector is projected to grow by 6.6% in Maine to the end of 2016, he noted that would be less than half the growth projected for the U.S. in that job sector.

Colgan's concluding remarks underscore the importance of initiatives led by Maine Technology Institute, the Small Enterprise Growth Fund, Maine Center for Creativity and others in support of entrepreneurs creating new industries and jobs that might keep young people in Maine as well as attract creative people from outside the state.

"Maine's demographics will begin to be something of a speed limiter on the economy in the coming years not only because of the aging of the population but because of the drop in the number of young people in the state," he wrote. "Over the 20 years from 1990-2010, the number of people in Maine between 18 and 34 dropped 20%. Certainly the surplus labor force caused by the recession and slow recovery will be more than enough to supply labor for the next several years. But Maine's population growth will have to accelerate after 2016 if adequate labor is to be available for an expansionary period."

If that demographic trend is not reversed, Colgan forecasts a "general problem" for Maine's economy — with the housing construction industry being at the forefront of that problem.

Colgan's answer? If housing permits in Maine grow from a low of 2,700 in 2011 to the 5,500 projected in 2016 — "about the annual average over the past decade," Colgan notes — Maine's population will need to grow by about 3,000 people per year. That will occur, he wrote, chiefly through "in-migration."

"This would be significantly above the last five years of in-migration and so requires a notable shift in population trends to begin fairly soon," Colgan wrote.

Looking at Maine's housing market, Colgan reported that since the second half of 2010 "existing home sales have trended upward so that 2012 has seen an average of about 940 units sold per month, compared with about 800 units in each of the previous three years."

Maine's average median house price, which fell from a high of $201,000 in April 2007 to $152,500 in January 2009, stood at $171,000 in September — which Colgan said is "up 11% from the low point but still 15% below the peak."