Bright Spots on the Economic Horizon

Participating in the Rutgers-Camden Quarterly Business Outlook were (l. to r.): Charles Plosser, Federal Reserve Bank of Philadelphia; Alan Zuckerman, Flaster/Greenberg; Doris Damm, ACCU Staffing Services; Mitchell Koza, Rutgers-Camden School of Business; John Culbertson Jr., Veritas Ventures; Kathleen Davis, Chamber of Commerce Southern New Jersey; Michael Camardo, Lockheed Martin.

by Mike Sepanic

Amidst a period of unpredictability, a panel of four top executives found reason for optimism during the second Rutgers-Camden Quarterly Business Outlook of 2007, held on April 17.

Approximately 200 executives attended the session to gauge strengths and weaknesses in the regional economy, and to relate those issues against global trends.

Moderator Mitchell P. Koza, dean of the Rutgers University School of Business at Camden, characterized the current economic climate as “chaotic,” and noted that the fundamental challenge of industry in such times is to adapt.

This Rutgers-Camden School of Business event is co-sponsored by the Cherry Hill law firm of Flaster/Greenberg and the Chamber of Commerce Southern New Jersey.

The following summarizes the report of each executive.

Keynote Overview
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, delivered a keynote overview of national and regional economic trends. “Monetary policy often is about looking forward to the future,” he explained in his opening remarks. “What we think about the evolution of policy is important.”

Plosser supported a previous FRBP forecast for 2007 economic growth in the range of 2.5 to 3.0 percent, reporting current trend growth to be “close to three percent.” He noted that “18 months ago, many thought that trend growth would be closer to 3.5 percent.” He encouraged the audience to take the lower growth projection as a “good, not bad, sign – four percent growth is not sustainable.”

He suggested that unemployment would remain low, and noted that inflation rates showed signs of rising during the first quarter of the year. “The inflation rate is likely to decline, but uncertainty about that forecast is increasing” said Plosser.

Consumer spending remains strong, driven by strong employment rates and healthy wage growth, two factors that Plosser anticipates continuing. He reported on some areas of uncertainty, including the housing market, which he characterized as “less uncertain than it was three-to-four months ago.” Due to a large inventory of unsold homes, new home construction has slowed. “There will be no recovery in housing spending until some of that inventory is sold. We’re still in the early stages of that recovery.”

Plosser discussed the subprime controversy. “Subprime helped many get credit to buy homes. It was a great opportunity for many,” he said. “On the other hand, clearly there were some abuses. The Fed is monitoring the situation of defaults carefully.” He offered his anticipation that subprime will not affect aggregate markets or consumption.

Business investment is another area of economic weakness. Despite strong fundamentals (employment, profits), the weakness in this area is puzzling. “All the pieces are there for continued business investment,” he said. “There’s every reason to suggest that it will resume.”

Southern New Jersey “seems to be doing pretty well,” reported Plosser. “Employment is strong, as is payroll growth and industrial productivity.

“There’s reason to be optimistic about South Jersey.”

Defense
Michael Camardo, recently retired as executive vice president of Lockheed Martin and president of Lockheed Martin Information and Technology Services, opened his presentation with the observation that “defense is a major player both nationally and locally. In 2006, the defense industry brought $1.7 billion in new contracts to southern New Jersey.”

He noted that AEGIS in Moorestown “gets strong support”; CSC provides critical software support for the defense industry; and L3 serves naval and space applications. Camardo added that area mid-sized firms are bolstered by the defense industry, with more than 600 Delaware Valley companies receiving defense-related contracts in 2005.

The industry employs 15,000 in the Delaware Valley, with an average salary of $75,000. “The demand for these jobs is on the rise,” reported Camardo, citing industry retirements and competition for employees from non-defense sectors as driving forces.

“Since the end of the Cold War, U.S. forces have been involved in overseas engagements continuously,” observed Camardo, who predicts continued support of the defense budget. He anticipates that the defense industry will expand into adjacent markets, and concluded that the southern New Jersey region will remain “very, very competitive.”

Current conditions: 80
Forecast: Same

Alternative Investments
John Culbertson Jr., partner of Veritas Ventures, reported on the factors that drive alternative investments, which he defined as investment partnerships not in the SEC asset class. He focused his discussion on hedge funds, which he said “used to be simply trading vehicles, but now the lines are blurred with private equity and real estate funds.”

Culbertson noted that $1.4 trillion was controlled by hedge funds at the end of 2006, and that hedge funds play a significant role in capital formation. He predicted that “assets will continue to pour into hedge funds,” and said that “picking the right manager is key.”

Olivia reported that more than half of New Jersey’s hospitals are losing money, and offered some hope for reform efforts on the horizon, including quality data reporting to provide consumers with product information and greater transparency in pricing.

Current conditions: 80
Forecast: Worse

Employment Trends
Doris Damm, president and CEO of ACCU Staffing Services, reported that the employment market favors the employee as employers struggle to find skilled workers. Payrolls for temporary employees remain high, as more employers are making use of a “pay card,” which functions akin to a debit card and allows workers to receive immediate payment for their services. “This is a response to the growing population of workers who are ‘un-banked,” said Damm. “It’s an opportunity for these folks to have something of their own.”

Companies increasingly are requiring drug screenings and background checks, which adds time to the process of placing a worker in a job, added Damm.

Current conditions: 75
Forecast: Better

The next Outlook will be held on July 17 at the Clarion Hotel and Conference Center in Cherry Hill. For more information, contact Samantha Collier

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