Introduction

Along with the rest of the nation, Maine is currently enjoying a healthy economy. Unemployment rates statewide reflect essentially full employment, and even in the areas that have historically lagged behind statewide averages, unemployment has been falling consistently for more than two years. Over the next two or three years, the national economic performance will principally determine Maine's. Indications are that the U.S. economy will slow down in late 1998 and continue to do so into 1999, and that Maine's economy will follow suit. In the longer term, several already well-established trends will determine the prospects for the Maine economy, and over the next twenty years these will render Maine an increasingly smaller part of the U.S. economy.

The basis for this outlook is the 1998 long-range regional economic forecast prepared by the author for USM's Center for Business and Economic Research using the Regional Economic Models, Inc. (REMI) econometric modeling system. The REMI model is a standard economic forecasting tool widely used throughout the United States. The USM version of the model comprises nine separate regions of single or multi-county areas. A separate forecast is prepared for each region, and the Maine forecast is the sum of the economic trends in each region.

The forecasts are based on four separate factors which interact mathematically according to standard principles of economic theory:

• Maine's share of the national economy: The process begins with a forecast of the U.S. economy (in this case, the U.S. Bureau of Labor Statistics long-term forecast). Maine's share of U.S. economic growth is established by examining the relative costs of production for those Maine goods and services which sell directly to the U.S. market.
• Industry interactions in Maine: Maine industries buy and sell from one another and from individual households. These input-output relationships are estimated for each region to determine the "multiplier effects" of sales to the United States. These effects depend upon how much Maine businesses buy and sell within Maine versus outside of Maine as well as upon the number of households in Maine and what they buy within the state.
• Trends: Trends in employment, industry output, and population are estimated over the period from 1969-1995, and these estimates are used to help adjust forecasts that show large changes.
• Model management: Adjustments are made to reflect recent or known future changes in the Maine economy that are not reflected in the base forecast. Such changes include the opening of new business firms or facilities (for example, MBNA America call centers) or their closing, as in the case of Bass Shoe in Wilton or Scott Paper in Winslow. Similarly, population forecasts are adjusted to reflect recent trends in population growth rates.

 

In 1998 Maine's economy, measured by its unemployment rate of about 4%, is performing at the level of or slightly better than the U.S. economy, but this belies the fact that for the entire period since 1990 Maine has been growing more slowly than the nation as a whole. Over the period 1990-1997, the U.S. economy increased employment by 12.7%, while Maine grew by a respectable but slower 9.6%. Barring a recession in the next 18 months, by 2000 Maine's total employment⁽¹⁾ will be some 56,000 higher than it was in 1990⁽²⁾.

Maine's slower economic growth in the 1990s is attributable to two major factors. First, Maine's (and New England's) recession in the early part of the decade was both longer and deeper than that in the country as a whole. The United States recovered most of the jobs lost in the recession by late 1993, a time when Maine was just beginning its recovery. Maine took until late 1995 to recover all of the jobs lost in the recession, and 1996 actually saw a mini-recession in the first half as a combination of job losses in manufacturing, government, and retail pulled the economy down. Second, most of the industries that have been driving national economic growth, such as information technologies, have not been present in sufficient mass in Maine to affect overall economic growth significantly.

The decade of the 1990s is witnessing some important transformations. The most important new industry are the call centers which have taken up residence in a number of areas in Maine, particularly in small cities such as Belfast, Camden, and Presque Isle. The expansion of the semiconductor manufacturing facility in South Portland as well as nascent software and biotechnology industries demonstrate that Maine is also taking part in the technological revolutions transforming post-industrial economies.

But steady drops in manufacturing have partly offset these additions. Bath Iron Works has lost 5,000 employees since 1990, and growth in other durable goods industries has not been sufficient to offset this major loss. Moreover, the long, slow decline in nondurable manufacturing employment (particularly apparel, shoes, and textiles) which began in the 1960s has continued through the decade. Examples include the closing of Bass Shoe in Wilton, the Scott Paper mill in Winslow, and the proposed large-scale restructuring of the Bowater mill in East Millinockett.

The 1990s has also been notable for the absence of a major construction or retail boom, like the one witnessed in the 1980s. Retail employment actually declined in 1996, contributing to the mini-recession of that year. Construction employment has grown somewhat, but no more than would be expected during normal cyclical expansions. Real estate values, particularly in southern Maine, did not show any significant increase until 1997.

These changes in employment in the 1990s reflect the long-term shift in jobs away from manufacturing and towards nonmanufacturing that are likely to continue over the next two decades. As Fig. 1 shows, annual changes in manufacturing employment will continue to be negative (with some additions in the middle of the next decade from BIW), while nonmanufacturing employment will account for almost all job growth. Government employment, particularly federal government employment, has seen a steady drop throughout Maine. This has been partly a result of the 1994 closing of Loring Air Force Base, but more so it reflects a long-term downsizing of the federal government, only slightly offset by the growth in state and local governments.

Since all of the net job growth will occur as a result of growth in the nonmanufacturing sector, this area requires more detailed examination. Fig. 2 shows the employment in the major nonmanufacturing industries from 1996-2020, indexed to 1996 = 100. These industries (and their labels in Fig. 2) are construction (CONSTR); transportation and public utilities (TPU); finance, insurance, and real estate (FIRE); retail trade (RETAIL); wholesale trade (WHOLE); services (SERV); and agriculture, fisheries, and forestry services (AFF). Of these industries, the most consistent growth will be in the services industry (along with agriculture, fisheries, and forestry services).

The FIRE sector is a key industry because of the growth of call centers such as those established by MBNA America throughout the state. These centers have added several thousand jobs in Maine in the 1990s, but their net effect has not been as large as might be expected because of jobs lost in the consolidation of the banking industry and the closing of branches.

The transportation and public utilities sector shows a fairly steady decline. This reflects long-range trends in this industry, but the forecast for this industry may be too conservative. The communications and energy industries are included in this sector, and each of these may show growth over the next decade. The energy sector has seen significant drops in employment recently, but the coming of deregulation and natural gas may reverse these trends. It is too early to tell whether this will happen or by how much, so estimates are not included in the forecast.

The forecast for the trade industries (wholesale and retail) do not show a boom, but rather relative stability into the next decade and then a slow decline in retail and a more significant decline in wholesale. The trends in wholesale are mostly due to improved technology (transportation and information processing) which will see capital increasingly replacing labor in this industry, while the retail sector's slow drop is connected to the population trends discussed below.

The result of these employment trends on the regions of Maine can be seen in Fig. 3. The USM forecast is made for nine county regions: Aroostook; Hancock and Washington; Penobscot and Piscataquis; Kennebec and Somerset; Waldo and Knox; Lincoln and Sagadahoc; Cumberland; Androscoggin, Oxford, and Franklin; and York. Fig. 3 shows the change in the share of manufacturing and nonmanufacturing employment in Maine for each region between 1995 and 2020, thus indicating which regions will grow relative to others.

The clearest decline is in Lincoln-Sagadahoc. This is entirely attributable to an assumed long-term gradual decline in employment at BIW, which obviously dominates the economy of these two small counties. The model assumes that BIW will continue to be fully engaged in building the Aegis class destroyers through 2009, when the Navy will stop purchasing this class of ships. After that, BIW is assumed to continue as an active builder of a new class of Navy surface combatants that is just now being designed. However, productivity improvements made possible by its new facilities and other changes will allow it to continue to build ships with about 5,000 employees after 2010. It presently employs about 7,000.

Fig. 3 also shows that small declines in the nonmanufacturing-employment share will accompany manufacturing declines in Kennebec-Somerset and Penobscot-Piscataquis (primarily in the paper industry). Contrary to the usual assumption about North-South splits in the Maine economy, the regions which will gain in the shares of employment include counties both in eastern Maine (Hancock-Washington), western Maine (Androscoggin, Franklin, and Oxford), and southern Maine (York and Cumberland) as well as in the central coast (Waldo-Knox).

Fig. 4, which traces the forecasted annual changes in employment for five groups of counties, further illuminates the regional pattern of employment growth in Maine. The first is coastal (York through Washington) and inland (all others); the second is northern (Aroostook, Hancock-Washington, and Penobscot-Piscastaquis), central (Waldo-Knox, Kennebec-Somerset, and Androscoggin-Franklin-Oxford), and southern (Lincoln-Sagadahoc, Cumberland, and York). Employment growth is distinctly faster in southern and central counties than in northern, but the largest gap is actually between coastal and inland counties. Moreover, the gap between the regions declines over time and the pattern of employment growth is consistent among them, showing the interdependence across all regions.
 

Population Growth Trends

Maine's population growth has substantially slowed in the 1990s. During the 1980s, Maine's population grew by 104,500, or 9.3%. However, the forecast is that by 2000 Maine's population will have grown by only 35,000, or 2.9%, since 1990. This slow rate of population growth is forecast to continue into the next decade, with a forecast of 45,000 additional population by 2010 (3.6% growth over 2000). However, such a slow rate of population growth will not be sustainable in economic terms. Simply put, if current rates of population growth in Maine continue into the decade, then from 2010-2020 Maine will not be able to add to the labor force quickly enough to significantly expand jobs and output. The forecast therefore shows accelerating population growth in the 2010-2020 decade, mostly through migration. The forecast for this decade is population growth of 81,000, or 6.9%.

Two major reasons account for the slow rate of population growth (Fig. 5). First, the number of births in Maine has been dropping dramatically. While the number of births in Maine increased by 6% during the 1980s, it is forecast to drop by 21% (more than 3,000 per year) during the 1990s. This trend is forecast to level out somewhat over the next two decades, although it must be emphasized that this is an optimistic estimate, one needed to allow for any continued employment growth. Maine's experience with a dropping birth rate reflects national trends. From 1990 to 2000, the U.S. white non-Hispanic population ages 0-5 will have dropped by 7.5%; the Hispanic population in the same age group will have increased by 28.2%.

The second major reason for slow population growth has been slow in-migration. As Fig. 5 shows, migration is very volatile from year to year. In the 1980s, the first half of the decade had several years of net out-migration, and most of the in-migration occurred during the second half of the decade. A generally similar pattern will recur in the 1990s, with net out-migration associated with economic declines in the early and middle parts of the decade. However, unlike the 1980s, there does not appear to be a prospect for a major recovery of in-migration in the later part of the decade. The most likely reason for this is that national economic growth is fairly evenly spread. Thus Maine (and the northeast) do not provide a clear-cut alternative to other regions to attract migrants to Maine, such as occurred in the late 1980s "bicoastal" economy.

 

DISTRIBUTION OF POPULATION GROWTH WITHIN MAINE
	1996-2000	2001-2005	2006-2010	2011-2015	2016-2020
Coastal	97.0%	92.2%	75.3%	66.3%	63.7%
Inland	3.0%	7.8%	24.7%	33.7%	36.3%
Northern	7.3%	6.4%	12.8%	17.2%	19.3%
Central	28.9%	30.2%	30.1%	27.4%	23.2%
Southern	63.8%	63.4%	57.1%	55.5%	57.5%

 

The major reason that the inland and northern areas will increase their share of population growth is migration. Fig. 6 shows the trends in births for the regions. Each region shows the same basic trends, in births, through 2010, but the faster growth in southern and coastal regions in the 1990-2010 period shows up as an increasing rate of births in 2010-2020 in these areas, while births continue to fall in inland and northern regions. It should be noted that overall birth levels in Maine are forecast to remain about where they are in the 1990s, with no major increases or decreases. In fact, the risk is that birth rates will continue to decline.

Fig. 7 examines migration trends in the regions. Negative numbers indicate out-migration; positive numbers indicate in-migration.⁽³⁾ As might be expected, the coastal and southern regions show consistently positive net in-migration. Northern, central, and inland regions show out-migration, through the 1990s. However, early in the next decade these regions will see small net in-migration, and this will accelerate in the decade after 2010. This forecast of rapidly increasing in-migration in the northern, central, and inland regions is driven by the model's equations which need to generate enough population growth to sustain some level of economic activity. Even with this relatively optimistic forecast, which requires a fairly dramatic turnaround from recent trends in these regions, Maine employment growth in the 2010-2020 decade will still average only about 2,500 jobs per year (absent any major structural changes which cannot be forecast at this time).

Another critical characteristic of the Maine population in the next twenty years will be the aging of population. This is typical of all states, of course, but Maine's situation has some particular characteristics resulting from the trends in migration and births just noted. Fig.8 shows the distribution of Maine's population by age group in 1990-2020, while Fig. 9 shows the comparable data for the United States. By 2020, both Maine and the United States show a small increase in the proportion of the population aged 65 and older. The major baby boom retirements will not come until after 2020, and so this major demographic transformation lies just beyond the current forecast horizon. But Maine does show a larger proportion of its population over aged 44 and over 65 than the United States. However, this aspect of Maine's "aging population" is more due to the declines in the younger population caused by the low birth rates in Maine than to a large older population.
 

Outlook Summary

Long-term forecasts such as those presented here are meant to stimulate thought about the future based on the interaction between national economic growth, Maine economic conditions, and near-term known factors. Extrapolating these factors out over several decades highlights underlying trends that may not be visible in more short-term forecasts or forecasts that incorporate business cycles. They should not be taken too literally, because many unforeseeable events will intervene over the next two decades that will change this forecast. The trends and issues revealed by the forecast are real enough, however, and deserve attention now whatever else the future may bring. These issues include the following:

• Maine's position as a slow-growing state in a slow-growing region is likely to continue, with slow population growth acting as an increasing drag on the economy. With fewer people, particularly fewer young people, sales of items like homes, furniture, and toys will decline and result in fewer jobs in construction, services, and retail industries associated with this population.

• Maine's working-age population will be predominantly made up of older rather than younger workers. Older workers are generally more productive, but are paid more and are less mobile.

• Regional divisions clearly still exist within Maine, but they are more complex than "North-South." In general, coastal and southern areas will grow faster than northern and inland areas. (Not shown in this data is the likelihood that urban areas will grow faster than the suburbs, even in southern and coastal regions.)

• Despite a good start, Maine faces significant challenges developing and attracting industries in the technology fields that have been the fastest growing nationwide. Long-term trends away from manufacturing employment and towards nonmanufacturing will continue.

1. The REMI forecast uses the "total employment" concept, which includes both wage and salary jobs as well as self-employment. Various sources limit employment data to wage and salary employment, so comparisons with other published data such as that of the Maine Department of Labor may be misleading.

2. These long-term forecasts are made without specific predictions of business cycle phenomena such as recessions. They represent the average effects of recessions, recoveries, and expansions. Readers interested in quarterly economic forecasts for Maine and New England may be interested in the semi-annual forecasts prepared by the author for the New England Economic Project (NEEP). Information may be gained from the NEEP website at http://www.neepecon.org/.

3. In- and out-migration are measured from the point of the view of the region; it does not necessarily indicate where out-migrants go or where they come from. Thus, out-migrants from Aroostook county may go to Cumberland county or out of state. In-migrants to Cumberland county may come from Aroostook county or from out-of-state. Because total Maine migration represents the sum of these county-regions migration, it represents both intra- and inter-state migration.