A mid-year look at South Jersey’s economy shows there’s reason to be cautiously optimistic about economic growth.
Financial professionals know that after the annual economic forecast is presented in January, anything can happen. For South Jersey, the first half of 2015 has shown slow—but steady—economic growth.
Currently, many of South Jersey’s banking and financial executives are reporting that the growth is there, but that it has come in the form of a series of gradual improvements. According to Buddy Buzzerd, complex director for UBS Financial Services Inc. in Mount Laurel, the First Quarter 2015 South Jersey Business Survey showed that the area’s individual company performance remained positive for the fourth consecutive quarter; and business owners were generally optimistic about both hiring and growth over the next six months.
“This is important because area business owners report these results themselves, and they also share their own expectations,” Buzzerd says. “You could argue that no one knows the local business climate better than these folks.”
However, while South Jersey’s economy has experienced improvement over the past few years, some financial executives still say it’s best described as fragile. “I haven’t seen anything that would lead me to believe that the local economy is doing anything to greatly improve itself. Recent census estimates indicate that the area has lost people, the real estate market has had mixed results due to the foreclosure situation, and the job market doesn’t appear to be gaining any ground,” asserts James Igo, president and chief executive officer for Delanco Federal Savings Bank.
“However, I do see gradual improvements in our local economy … but not at the levels of growth we’ve experienced in the past.”
In some cases, the data is suggesting that while the entire country took a few hits earlier this year, South Jersey has already seen some improvements in 2015. “When people think of the economy, they often think of the unemployment rate … and it’s hard to go completely by the data that’s provided by the Philadelphia Federal Reserve on employment when you look at South Jersey as a whole,” Buzzerd explains.
In South Jersey, there are some regions that may impact the overall data, but don’t necessarily reflect the economic development across the region. “Two of the state’s most economically troubled regions are located here in South Jersey. … We are working through some significant challenges in areas like Atlantic City and Camden, and that skews the figures,” he adds.
The unemployment rate in Atlantic City is right around 11 percent, which has remained largely unchanged for the past few years. Meanwhile, Camden County is showing improvement at a current rate around 7.5 percent, which shows significant progress within the last three years—and the national unemployment rate still hovers right below 6 percent. “There is some real data that suggests that business and employment will continue to improve,” Buzzerd adds.
“In general, we’re seeing our top clients doing well and other businesses doing better—though the improvement isn’t off the charts, and many are still struggling,” adds Gary A. Farnesi, senior vice president and regional manager of Cape Bank in Mount Laurel. When it comes to the region’s small and mid-sized businesses, he says, growth may be hampered by issues unique to smaller companies, such as health care costs. “I do see a lot of smaller and mid-sized companies attempting to either grow rapidly or sell the business entirely because it’s hard to do business today when you have 100 or fewer employees. … The costs associated with small businesses are making it difficult for them to grow, and they are still very much under pressure.”
But whether you’re a small mom-and-pop business or a large corporation, the improvements throughout the South Jersey region were already starting to appear in the fourth quarter of last year. According to Gerry Cuddy, president and CEO of Beneficial Bank, local financial executives were already starting to see a slight uptick in indicators such as hiring and refinancing late in 2014. “Low, single-digit growth beats no growth any day,” he says. “We’re completely signing up for this for the time being in the hopes that more significant growth is on the way.” At this point in 2015, the momentum does seem to be picking up, he adds, with progress in sectors including housing sales, local hiring, and companies and consumers utilizing home equity lines and investing in deferred home projects.
“We may not be knocking the ball out of the park for our economic growth, but in terms of refinancing a mortgage or locking in rates for a new project, we’re advising people not to miss out on the opportunity,” he adds. “Things are starting to pick up and rates are likely to increase, and if you’re a business or homeowner with a new project on the horizon, now’s the time to do it.”
Farnesi confirms that an increase in construction, from chains like Wawa to apartment and condominiums in Shore towns, is serving to boost the economic recovery throughout the South Jersey and Philadelphia markets. “There have been a lot more transactions in terms of real estate, and what’s interesting is that we normally would see about 80 percent of business coming from 20 percent of people doing those types of transactions … but right now we’re seeing the top 5 to 10 percent doing almost all of the acquisitions and building,” he says. “These strong business entities are well capitalized, borrowing at aggressive rates, and taking advantage of a climate with lower interest rates.”
Indeed, Luke A. Tilley, vice president and chief economist for Wilmington Trust Investment Advisors in Delaware, reports that after a rough start to 2015, the entire country’s recovery may still be underway, and improvements are expected at least through the third quarter of this year.
“I think the first quarter was largely affected by the weather; for example, we just recently saw some of the port activity return to normal. Meanwhile, business investment was very low in the first quarter, and we think a lot of that has to do with the reduced investment in the mining and oil industry. … But we don’t think that’s going to continue in the second and third quarters,” he says. “And it looks like the average consumer is still well positioned to drive some continued economic growth in the middle of the year.”
As of January, the national forecast for growth in 2015 was set at a modest 2.9 percent, and Tilley says he is optimistic that the country will continue to bounce back, even as the forecast was lowered to 2.6. “Some of that is because it appears that depreciation of the United States dollar has hurt our exports a little more than we initially expected, so while we would have expected more growth earlier in the year, we’re still expecting to have a little bit of a comeback,” he explains.
The best news of all is that local business owners may be able to look forward to increased hiring. Buzzerd notes that the South Jersey Future Employment Index, which measures area companies’ expectations for hiring over the next six months, is showing its highest reading since 2005. New Jersey’s construction, trade and health and education sectors have all shown double-digit gains in terms of year-over-year payroll growth. “Certainly we could see that trend to continue in this area—especially in the health care sector, given population demographics and the presence and expansion of great local organizations like Cooper, Virtua, AtlantiCare and others,” he says.
Throughout the country, hiring statistics have also been somewhat encouraging. Tilley notes there was low national job growth in March, but April’s numbers confirmed that it was a temporary blip, with 223,000 jobs added that month. “We’re seeing that the job market is still relatively strong,” he adds.
Of course, South Jersey’s improvements may not be quite as strong as the economic recovery in surrounding regions, such as North Jersey and Pennsylvania. “We seem to be trailing both areas,” Igo says. “The Pennsylvania real estate market seems to be improving as they have gotten through most of their foreclosures and the market has absorbed them, while North Jersey real estate values have also rebounded—although foreclosures still remain an issue throughout the state.”
While economic recovery hasn’t moved at the same pace as North Jersey, Cuddy says it has been slow and steady. “In South Jersey, we have all of the developments in Camden, which is very exciting, as well as improvements in counties like Burlington. … Meanwhile, we anticipate a great season for the boardwalk and smaller mom-and-pop businesses down the Shore this summer,” he says. “Southern New Jersey has always had its own identity and economy, and we’re seeing that it’s a little steadier and consistent in terms of our return to recovery than North Jersey or Pennsylvania.”
Regardless of where your home or business is located in New Jersey, there are an array of factors that can continue to negatively impact the rate of growth, including federal interest rates. “With the likelihood that the federal government will begin to raise interest rates in the near future, borrowing costs on everything will likely rise … further limiting the recovery,” Igo warns. He urges both businesses and consumers to control their debt in an effort to speed up the region’s overall economic growth. “My advice is to continue to control expenses, make measured expansion where it’s warranted and supported, and rely on your professionals: the lawyers, accountants and, most importantly, their bankers.”
According to Tilley, the Federal Reserve is expected to begin raising the target for short-term rates as of September of this year, and that will start to increase interest rates throughout the market. “However, once that occurs, we expect those hikes to be fairly slow and incremental at first … and we don’t think they will go up very quickly,” he adds.
“If interest rates were to go up, I do think it would be challenging. … There are a lot of aspects of economic growth that are associated with lower rates, and it could halt South Jersey’s continued economic growth and put financed projects in jeopardy,” Farnesi agrees. “The good news is that if interest rates stay low and under control, we’re confident that we will continue to see continued growth.”
The political climate is also always a concern when it comes to monitoring economic growth. “As a business owner, you always have to worry about your customers and employees, but you also have to keep tabs on business regulation and the political climate,” Cuddy says. Regulations can make it especially difficult for smaller businesses and regional banks.
“We do need to have some relief from regulations in order to be allowed to prosper,” Farnesi says. “Banks are filling a significant need in the business community, but we’re under great pressure right now … and it has to be addressed in order to see continued growth in our local economy.”
When it comes to weathering the economic challenges of the first quarter of 2015 and looking ahead to continued growth, South Jersey businesses still have to exercise strategy in order to remain competitive and profitable.
“Remaining competitive is going to come down to staying efficient, and at the same time, starting to really look at either retaining good labor or increasing your efforts to find good new talent,” Farnesi concludes. “Hiring may have been on hold for while, and I think that's where the challenge is going to be moving forward. … As things get a little better, people become more mobile, and they will move if they’re not finding the competitive employment opportunities right here in South Jersey.”
Published (and copyrighted) in South Jersey Biz, Volume 5, Issue 6 (June, 2015).
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