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By EDWARD D. MURPHY, Staff Writer Sunday, February 25, 2007

Southern Maine may be the economic engine of the state, but even the best of engines can misfire on occasion.

Unemployment in Cumberland and York counties remains the lowest in the state and companies are still attracted to the region for the quality of life it offers employees, its proximity to Boston and the desirability of locating among the fastest growing firms in Maine.

But some of the by-products of the regionÕs success are also causing a few companies to look elsewhere.

High rents for offices, steep housing prices for workers and a tight labor market have led some companies to locate or expand north of the regionÕs epicenter in Portland, said Laurie Lachance, president and chief executive officer of the Maine Development Foundation and a former state economist.

In addition, economic development officials have worked hard to attract businesses to rural areas of the state through incentives under the Pine Tree Zone program.

Lachance said Lewiston and Auburn, in particular, have drawn some of the businesses that might otherwise have located in southern Maine. They include big employers such as a distribution center for Wal-Mart and back-office operations for TD Banknorth.

ThatÕs not to suggest that southern Maine is on the verge of becoming an economic backwater.

Economists project that Maine businesses will create 2,500 to 3,000 net new jobs this year and most of them are likely to be in southern Maine, said Gerard Dennison, director of regional work force analysis for the Maine Department of Labor.

Dennison noted that Portland remains the regionÕs financial center and that helps attract everything from start-ups in the burgeoning field of composite materials to blood research and the creation of new medicines for animals at Idexx Laboratories in Westbrook.

ÒThereÕs a lot of cutting-edge research and development going on,Ó Dennison said, and pointed out that many high-tech companies like the fact that their employees can live and work in Maine and still commute to take courses at leading colleges and universities in New Hampshire and Massachusetts.

And, Dennison said, even if growth in southern Maine slows, it will still be better off than most other parts of the state.

Unemployment in the Portland metropolitan area, which stretches south to Biddeford, was 3.3 percent in December, well below the statewide figure of 4.7 percent and the national average of 4.6 percent.

The area has been relatively immune to major layoffs, he said, and the decision last year to remove Portsmouth Naval Shipyard in Kittery from a military base closing list preserved thousands of high-paying jobs at the southern tip of the state.

Dennison said construction of a new campus for Mercy Hospital in Portland is expected to begin this year and likely will boost construction employment over the next five years and create new jobs after it opens.

In addition, work on new LoweÕs and Wal-Mart stores in Scarborough will provide both construction jobs and retail employment when they are finished and the new CabelaÕs outdoors outfitter Ð with a hotel, restaurants and office space in the same complex Ð on Haigis Parkway will boost construction work and employment further.

One limiting factor for the region, Lachance said, is the tight labor market. Many economists would consider the unemployment rate in southern Maine to represent full employment, since some of those out of work are already moving to other jobs, are seasonal workers or may simply be difficult to employ.

Will Armitage, executive director of the Biddeford-Saco Area Economic Development Corp., said business activity in his area has eased after a busy few years, particularly in retail construction and retail staffing.

ÒIt has slowed down a little bit over the past year,Ó he said, adding that larger industrial projects may be on hold while companies assess the national economy. ÒOverall, thereÕs a hesitation to do anything, a little bit of a pullback in terms of waiting to see where things go.Ó

His agency, Armitage said, has shifted its focus, while those large projects wait, to small downtown revitalization efforts, such as helping to arrange financing recently for a small cafe, a day-care facility and a small bookstore.

ÒBut thatÕs not necessarily a bad shift for us,Ó he said. ÒTo see that revitalization in the downtowns is encouraging.Ó

The tight labor market remains as much of an issue in York County as it is in Cumberland County, Armitage said, and the rapid retail expansion in the area, particularly in Biddeford, hasnÕt eased that.

Still, despite issues that cause some businesses to look elsewhere, the economy in southern Maine remains robust, Lachance said.

ÒEven a down time in Portland looks like heydays in a lot of parts of the state,Ó she said.

Staff Writer Edward D. Murphy can be contacted at 791-6465 or at: emurphy@pressherald.com