Business Journal NORTHEAST
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PENNSYLVANIA
THE REGION’S AWARD-WINNING SOURCE OF BUSINESS NEWS AND INFORMATION
JANUARY 2016 VOL. 31 NO. 01
wage growth to lift NE Pa. from ‘economic doldrums’
2016 Economic Forecast By Dave Gardner
NEPA may have a reputation as a closed tribal region, but a mix of national and global events may greatly influence the regional economy during 2016. Lynn Evans, president and CEO of Northeastern Financial Consultants, forecasts that national economic metrics will bleed into the regional economy. She forecasts that unemployment will be under five percent during 2016 and the national GDP will measure about 2.5 percent, or perhaps even a bit higher. Inflation will be measured at approximately 1.5 percent. Meanwhile, retail prices of fossil fuels for energy will be increasing from 10 percent to 15 percent above current rates. “Interest rates have been a subject of ongoing speculation, and I believe we will experience a minimum of three increases from the Fed during 2016,” says Evans. “During 2016 this Fed interest rate will wind up at around 1.5 percent.” According to Evans, the stock market will continue to move along with a slower expansion than the current rate of growth. She expects a six percent to eight percent overall return will be achieved during 2016, with periodic corrections between 10 percent and 20 percent. “The bond market will still struggle as increased interest rates from the Fed make the current supply of bonds unattractive,” says Evans. Regionally, she notes that housing prices have increased, but only with the higher valued homes, and this trend will continue. New housing starts are fewer than what historically has happened within a
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recovering economy at this stage, and this scenario is generating a very robust seller’s market. Evans also has concerns that issues in the Middle East could explode and cause a serious economic threat worldwide. The Greek economy and related Euro zone issues will continue to haunt the European markets. “China’s economic downturn might have an impact on us, but probably but not as much as many analysts fear,” adds Evans.
All About wAgEs
Exceptionally low mortgage rates will finally be ending but consumer spending will remain healthy and create a slight up-tick for the regional economy during 2016, forecasts Kurt Rankin, assistant vice president and economist with PNC Financial Services Group. He notes, with curiosity, that low gasoline prices have not provided a massive economic boost. Employment issues rank near the top of concerns for Rankin, and he has observed that the Allentown area is doing somewhat better with
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this metric than NEPA, which he says has some catch-up work to do. Some of these job gains are being achieved in relatively high-paying industries including manufacturing, transportation, and construction, but Rankin points out that wage growth is missing. “Overall manufacturing is not bouncing back and NEPA still has an excess labor supply, which is depressing wage growth,” says Rankin. “Healthy wage growth is the key to pushing NEPA economically forward, but we still have excess employment talent out there and this is not forcing
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wages up.” Rankin therefore emphasizes that wage growth is the “bottom line” for NEPA to break out of its economic doldrums. This growth would kindle consumer spending, stimulate business, and force hiring while forging an on-going trend of business expansion. The subject of energy prices is another matter. Even if Iran is able to once again sell its oil globally, resulting in a price battle with Saudi competitors, Rankin does see evidence that a big economic stimulus will occur. “Just how low does oil have to go to become a big economic stimulus?” questions Rankin. “Plus, oil prices must go back up.” He adds that the close proximity of the Marcellus Shale’s natural gas must bring industrial development to NEPA. However, vehicle conversion to natural gas will be delayed by the current dip in gasoline prices, but as America inevitably uses more natural gas an economic conversion will oc-
MEET DR. MICHAEL ROgERS AND APRIL ROgERS FROM COMPLETE HEALTH DENTISTRY OF NEPA.
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