December 17, 2018
Business

Economist: Defense cuts could affect growth

PORTLAND – Maine’s economic outlook is good for the coming year, but the state’s military infrastructure is a wild card in the equation, according to a forecast by one of the state’s top economists.

The state added 5,000 jobs last year and is expected to add another 8,000 jobs this year, but the optimistic picture could abruptly change, said Charles Colgan, professor of public policy and management at the University of Southern Maine.

Defense cuts at Bath Iron Works and the defense base closure process that gets under way in earnest this year could cause the outlook to “change dramatically very quickly,” he said.

The net increase of 8,000 jobs would amount to job growth of 1.7 percent, an increase from 1 percent last year, Colgan said. Looking ahead over the next few years, he foresees job growth of 1 percent a year, which would be below the national average.

That job growth will be accompanied this year by a projected 3.5 percent growth in the state’s overall economy, slightly behind what’s expected nationally.

It will push the 2004 gross state product of $41.7 billion to $43.6 billion this year, he said, a reflection of the total output of goods and services in Maine.

In the last year or so, the economy has been expanding in Maine and nationally, but job growth hasn’t caught up. Colgan attributed the trend to increased productivity, the ability of companies to do more without hiring new workers.

“The ability to continue doing that is coming to an end,” he said.

Colgan, who briefed local business leaders Wednesday, also highlighted Maine’s growing population, which increased by 42,000 between April 2000 and July 2004. That’s just a bit less than what the state saw for net population growth throughout all of the 1990s.

The state currently has 1.3 million residents. Many of the newcomers are from Massachusetts and are settling in York County, he noted. They’re moving to escape high housing costs in the Bay State. This trend is good for Maine home builders, Colgan said, but will contribute to rising home prices here.

He’s more worried about the federal budget deficit, the U.S. trade imbalance and the process under way in Washington to trim defense spending.

Any actions that could close Brunswick Naval Air Station or Portsmouth Naval Shipyard, he said, or drastically reduce shipbuilding at Bath Iron Works, would ripple through Maine’s economy.

“All the job growth I foresee would go away,” he said.

A former state economist, Colgan serves as a research fellow at the U.S. Bureau of Labor Statistics and chairs the Maine Consensus Economic Forecasting Commission, which prepares an economic outlook report for state budget preparation.

Colgan’s predictions for 2005 are based on his analysis of employment trends, income, retail sales and other indicators.


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