Coping in troubled times

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by C. Benjamin Ford * Staff Writer

Jody Friend, President JLM Consulting, LLC a human resources outsourcing company in Germantown, is betting that the uncertainty of the economy will benefit her as companies look for lower-cost alternatives to hiring their own human resources workers.

War talk, recession worry businesses for the future

Is all the talk about war with Iraq a harbinger of a rebounding regional economy, or is it dampening an already sluggish recovery?

For some business owners, increased spending on defense and homeland security is an opportunity; for others, it is an off-putting specter keeping them from making new investments and hiring new workers.

"The defense industry is huge here, and there's been an uptick for them and, I guess, that will trickle down a bit," said Bradford Wills, an owner, president and COO of public relations firm Wills & Associates of Bethesda, who recently landed a contract to do work for a Northern Virginia defense contractor.

But despite being "cautiously optimistic" about his company's future, Wills is not rushing out to expand his staff.

"People say Washington is recession-proof ... but now there's more of a balance of government and private sector jobs here so it is more challenging than 15 years ago, or during Bush I's war," he said.

Experts agree.

"If there's a serious terrorist attack or a declared war on Iraq, it is going to cause everybody to stop spending once again and that could push us back into a recession," said Daniel Gerlowski, associate dean of economics and finance at the University of Baltimore.

"The economy is going to be flat while these forces sort themselves out," he said. "So you have some things working to slow the economy and some things working to speed it up, so, I think it's going to remain balanced."

Some say the economy is poised for a rebound, but is being held back by factors that have less to do with the market than with mental anxiety.

"The flatness has very little to do with economics. It's much more psychological," said Stephen Fuller, an professor of public policy at George Mason University.

Impact of defense spending

Economists predict that the boost in federal spending in the region -- estimated to rise $2.5 billion over last year's $30 billion -- will seep down eventually.

Most of that money is going to companies doing work on intelligence gathering and security systems, Fuller said. "The kind of stuff the Beltway bandits do."

While worry of war is holding down the economic recovery, it is not boosting the region's growth as much as might have been expected.

"The likelihood of war in Iraq is fairly small. It's not remote, but it isn't something we should assume is going to happen," Fuller said. "But as long as that is hanging over our heads, it does take a little of the luster off the recovery. It is a distraction."

Nor is the infusion of increased defense spending the economic panacea it once was.

"We won't get a windfall on defense spending, but we will get some increase," Fuller said.

Ivan Eland, director of the defense policy studies at the Cato Institute in Washington, D.C., agreed.

"Anytime you get new contracts, there's new overhead and that's what the Washington area offices are," he said.

And then there's the fact that most of the defense contracts won by companies such as Bethesda's Lockheed Martin Corp. end up creating jobs elsewhere. Lockheed's $200 billion contract for the Joint Strike Fighter won't be spent here, but in Texas, Georgia and California where the planes and equipment will actually be built.

That may explain the pessimism expressed by area employers in a recent hiring survey, said Anirban Basu, director of the Regional Economic Studies Institute at Towson State University.

"The increased federal spending is creating less spin-off than I thought it would," Basu said. "Federal contracting is just not the story here in Maryland right now. It may become that, and I am surprised it is not, but right now it is just not happening."

In the statewide survey by staffing service Manpower International Inc., Montgomery County employers were the most pessimistic in the region about plans to hire additional workers for the coming quarter; only 10 percent said they plan new hires.

That compares to 31 percent of employers statewide who said they are planning to add staff. In the Washington, D.C., metro area 18 percent expected to increase.

That attitude is similarly reflected in Prince George's County where 13 percent of the employers expect to add staff, and in Frederick County where 17 percent plan to expand their staff.

By comparison, 47 percent of Baltimore employers said they expect to hire. Other areas of the state were fairly optimistic: 33 percent of Annapolis employers and 33 percent of Hagerstown employers expect to grow, according to the Manpower survey.

Baltimore employers may be more optimistic because that area's economy has rebounded faster from last year's layoffs, due in part to growth at defense contractor Northrop Grumman Electronic Systems and Sensors Division in Linthicum, which has landed a number of military contracts, Basu said.

Coping with uncertainty

Wills is among those who are coping with the uncertainty by hiring free-lancers to do additional work and have no plans to take on more permanent staff.

During the technology boom of the '90s, about 70 percent of Wills' company's clients were telecom and technology companies. Now the firm has begun to slowly replace lost telecommunications clients with defense contractors who do IT work.

"The pace has slowed down a little bit, but we've picked up business that the larger firms have lost because businesses are looking for less expensive firms to do their work," Wills said.

Jody Friend, owner of JLM Consulting LLC, a human resources outsourcing company in Germantown, is betting that the uncertainty of the economy will benefit her as companies look for lower-cost alternatives to hiring their own human resources workers.

After being laid off twice in two years, Friend decided to strike out on her own in January.

"I was laid off in the summer time and decided to take the remainder of the summer off and do some soul searching and decided I would try to venture out on my own," she said. "I saw there is a need for services I provide. The smaller businesses with 20 or less employees are not going to hire a full-time HR staff person, but they often find themselves in need of HR expertise, and that's where I'm able to provide services."

Friend's first client was the telecommunications company that had laid her off. It paid her to prepare severance packages for other employees it was letting go.

Anne Shreeve also decided that the uncertainty about working for someone else was a good reason to go into business for herself.

"Logically, it's not the best time to do this, but certainly staying with companies isn't secure either," said Shreeve, who launched Assateague Word Processing and Transcriptions, a Germantown typing service, in May.

Shreeve said she weighed the risks of opening her own business against the risks of being laid off before starting her company.

"I always wanted to start my own business anyway, but I had children to raise," she said.

But she sometimes wonders if she made the right decision.

"The economy scares me and the thought of going to war without allies on our side scares me to death," Shreeve said.

The uncertainty affects established companies as well. Kenneth Weiss has owned Plans and Solutions Inc., an international trade relations company in Gaithersburg, since 1996.

The company is doing well, but Weiss worries more about his personal economics.

"In my particular case, I've not had a slowdown," he said. "I'm certainly concerned from a personal point of view when I look at my investment portfolio. It's suffered considerably. I'd like to know where the economy is going to go."

Still, the worry over war is out there.

"Economically, most of the world is not doing as well as we'd like it to be. I do a lot of work in Latin America and all of the countries have been suffering economically which means they are worried about making investments and slowed down in new production facilities and marketing," Weiss explained.

"Politically, we're all pre-occupied with a war on Iraq where there's a great variety of opinions. Anything like that is upsetting and war on Iraq could raise the price of oil and hurt the economies everywhere except the oil-producing countries," he said. "I had always thought war was good for the economy, but in this case the war on terrorism doesn't seem to be."

Catherine Hills, on the other hand, said there is work to be had if one looks for it.

Hills, who owns Call What's Her Name Inc., a business service company in Montgomery Village she started earlier this year, spends a lot of time networking.

"You do as much time doing work you don't get paid for so hopefully it ultimately leads to success," she said. "The economy will always correct itself eventually. We go through good times. We go through bad times. We find a way to get through." * *