Economy worries even Montgomery

Anxiety over housing crisis and uncertainty about federal stimulus have county residents on edge

Wololo, a 35-year-old Gaithersburg resident, is like lots of people and worried about his house.

‘‘I think about selling it, but nobody’s buying. People are trying to get out of their homes,” Wololo said.

His co-worker Richard Topacho is in the same fix.

‘‘It’s a worry,” said Topacho, 46, also of Gaithersburg. ‘‘I used to be a homeowner, but I had to sell it to make ends meet.”

Said Wololo: ‘‘If we’re not in a recession, we’re heading there.”

Even in Montgomery County, buffered from financial ups and downs by federal government spending, some — like Wololo — are starting to use the ‘‘R” word.

Fears have emerged in various quarters. In company conference calls, executives speak about earnings and stock-price declines. In the General Assembly, fiscal hawks complain Gov. Martin O’Malley’s proposed spending plan fails to prepare for a downturn.

Many economists blame the slowdown on the ongoing housing and credit crunches that have seen home foreclosures skyrocket in recent months. The credit crisis then helps to fuel wide swings in the stock market, where workers can see 401(k) retirement savings evaporate one day and rebuild the next.

The two leading economic engines in Maryland — federal spending and health care — are not subject to the same cyclical forces affecting finance, construction and other business segments, said Anirban Basu, chairman and CEO of the Sage Policy Group, a Baltimore economic and policy consulting firm.

‘‘The federal government, in fact, will be looking for ways to stimulate economic activity,” he said. ‘‘That’s good news to leaders in Maryland.”

President Bush and the U.S. Congress are trying to hammer out a stimulus — currently a $600 rebate for most taxpayers and then $300 a child.

But some in Montgomery doubt the plan’s value.

‘‘It’s a Band-Aid effect. It’s not going to solve problems,” said Dan Botkiss, an 83-year-old retiree who lives in Kensington. ‘‘More jobs have to be provided. When people have more money they’ll spend it, and it will snowball from there.”

Ilia Coutsos and her family moved to Rockville from Michigan, but they can’t find a home they can afford. For now, they’re staying with her husband’s parents.

‘‘I always welcome more money. I think we’re in some trying times right now. [The tax rebate] is a nice gesture, but it won’t be a cure-all,” Coutsos said. ‘‘We’d use the money for something necessary like paying off bills or debt. It definitely wouldn’t go towards entertainment purposes.”

Maryland merchants favor a stimulus package that would boost consumer spending, said Thomas Saquella, president of the 600-member Maryland Retailers Association. His organization projected a 2 percent increase in holiday sales in Maryland. Saquella said the state might not have reached that.

The tax rebates come as the Federal Reserve has cut interest rates.

After global markets plummeted last week, the Fed reduced the federal funds rate from 4.25 percent to 3.5 percent, the biggest reduction in that rate since 1990.

But to some the interest rate cuts and the stimulus package amount to too little, too late. Peter Morici, a professor of international business at the University of Maryland, College Park, says flatly: ‘‘2008 will not be a good year.”

The former director of economics at the U.S. International Trade Commission sees structural flaws in the nation’s banking system, such as the way Wall Street banks bundle loans into securities. Citigroup, which has placed much of its operations in Maryland, reported a $9.8 billion net loss for the 2007 fourth quarter — compared with $5.1 billion in net income a year ago — primarily related to losses on mortgage-backed bond products.

‘‘They resell mortgages over and over to generate a lot of fees,” Morici said. ‘‘We need to simplify the mortgage-writing process.”

A key difference in a potential recession this year from a relatively mild one that occurred about seven years ago is that this one would be more consumer-driven, Basu said. Consumers might not be able to spend as much this time, he said.

‘‘I wouldn’t even notice [a tax rebate] because I have so many medical bills,” said John Lovell, who is 53 and uninsured.

A Gaithersburg handyman, Lovell is seeing his client base shrinking. ‘‘My customer base isn’t what it used to be. More people are selling [their homes] for what they can get.”

While the federal government is pumping money into the economy, the state government is taking more away. After last fall’s special session, the General Assembly passed a slew of tax increases to close a $1.5 billion budget gap for the financial year that begins July 1.

‘‘By no means can we say the problem is completely solved,” said Warren Deschenaux, director of the legislature’s nonpartisan Office of Policy Analysis, at a recent hearing of budget committees. ‘‘But it is easier to envision a happy ending for the general fund than it was six months ago.”

Though happy endings may be easier to envision, fiscal leaders in Annapolis are by no means optimistic. New revenue estimates are due in March.

‘‘There is, on the House and Senate side, a recognition that the revenue is not going to live up to the expectations,” said Senate Finance Chairman Thomas McLain Middleton (D-Dist. 28) of Waldorf. ‘‘Instead of waiting until March, we should start working on it now.”

At least unemployment in Maryland remains a non-issue.

The Department of Labor, Licensing and Regulation reported last week that the state’s seasonally adjusted unemployment rate for December was 3.8 percent. That is well below the national rate of 5.0 percent and slightly below the Maryland rate a year ago of 3.9 percent.

‘‘I expect most business people to adopt a conservative attitude in hiring,” Basu said. ‘‘Job creation is looking to be quite slow.”

Maryland’s job growth averaged about 1.1 percent last year, slightly lower than the nation’s 1.3 percent employment growth rate, according to a report released last week by the Maryland legislature’s Office of Policy Analysis.

And there’s other good news, even if only temporary. The price of gasoline has fallen to less than $3 a gallon. According to AAA Mid-Atlantic, though, that price is still 70 cents or 80 cents more per gallon than a year ago.

But as the financial picture sharpens, Montgomery County’s wealth can blur the fault lines of economic hardship.

‘‘We’re in a bubble in Bethesda-Chevy Chase,” said Mary J. Murphy, a 38-year-old Realtor from Bethesda. ‘‘We’re such a metropolitan, cosmopolitan area, it’s hard to see what real America is struggling with.”

Staff Writer Sean R. Sedam contributed to this article.