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Updated: September 15, 2023

Recession threat 'has faded' for now, Maine state economist says at MEREDA event

Amanda Rector on stage Photo / Renee Cordes Maine State Economist Amanda Rector, speaking at a MEREDA event in Portland on Thursday, said that a recent Moody's upgrade on Maine's credit rating "was really exciting."

Despite Maine’s tight labor market and rising U.S. interest rates, Maine State Economist Amanda Rector is cautiously optimistic about the state’s economy.

“The recession threat has faded for the moment, but that does not mean we are out of the woods yet,” she said at a Thursday event hosted by the Maine Real Estate & Development Association.

Factors adding to the current uncertainty include rising energy costs, as reflected in a crude oil spot price that peaked in summer 2022 and then started to come up again more recently.

“This is particularly troubling for Maine as we head into the heating oil season,” she said. 

Given Maine’s reliance on fuel oil for heating, if people are spending more money on that then there is less money to spend into other parts of the economy, she added.

She also noted while the cost of shelter, a major contributor to the core consumer price index, remains “very high,” the pace of inflation has started to slow since last summer’s peak.

“It is not indicating inflation,” she said. “It is just … increasing at a slower pace.”

In July, the U.S. Federal Open Market Committee raised the target for the federal funds rate to a range of 5.25% to 5.5% and issued a median projection for 2023 of 5.6%, implying another possible increase of 25 basis points later this year.

But Rector said the scenario could change depending what happens in the meantime with inflation and employment, noting the difficult task for central bankers.

"That is quite a tightrope to walk, and you get a lot of flak if you get it wrong,” she said.

As to unemployment, she noted that while the July jobless rate was at a record low of 2.4% for a fourth consecutive month, there are some variations around the state with "slightly higher" rates in the so-called rim counties.

She also expects continued growth of employment in professional and business services and hospitality.

The Maine Department of Labor is scheduled to release August unemployment data on Tuesday, Sept. 19.

Moody’s upgrade 

On the good-news front, she pointed to a recent upgrade by Moody’s Investors Service on Maine’s credit rating outlook as “really exciting.” 

Moody’s raised its outlook from stable to positive in May, while S&P Global Ratings affirmed its AA rating and stable outlook.

Rector also noted that Maine has a robust “rainy day fund” of $978 million, the statutory maximum.

“That is a really good cushion for the Legislature and the government to tap into” if needed “without having to make really abrupt changes,” she said.

In addition, pandemic-related federal funding continues to flow into the economy even though the programs ended.

“That helps to continue the economic impact around the state, and that could help us weather a potential slowdown,” Rector said.

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