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©Rutgers University 2000
Uncertainty Dominates South Jersey Economy
by Mike Sepanic
Pockets of potential and pockets of despair.
Such was the underlying theme articulated by Thomas Bracken, CEO of Sun Bancorp, and delivered by six leading area business leaders during the fourth-quarter session of the Rutgers-Camden South Jersey Business Outlook on Oct. 16. Almost 300 executives attended to receive a first-hand overview of the region’s economic health and its likely future; panelist Doris Damm noted the growth of the event from its inaugural audience of 28.
On average, the business leaders rated current economic conditions as 65 (out of 100), with no clarity for future predictions. Panelists also reported that the events of Sept. 11 served largely to increase the economic uncertainty that already existed throughout the nation. Dr. Milton Leontiades , dean of the Rutgers University School of Business at Camden , moderated the panel.
This Rutgers-Camden School of Business event is co-sponsored by the Cherry Hill law firm of Flaster/Greenberg and the Chamber of Commerce of Southern New Jersey .
The following summarizes the report of each executive.
Economic Overview
Dr. Ted Crone, vice president for the Federal Reserve Bank of Philadelphia, observed that previous expectations for a summertime rebound in the economy failed to materialize. “Frankly, the economy didn’t develop as expected,” he said, adding that an already-weak national economy was staggered further by the Sept. 11 attacks. Dr. Crone questioned whether recent “bouncebacks” in the markets would stick, suggesting the timing of a rebound is “impossible to determine.” New Jersey employment numbers declined during the second and third quarters. A pre-Sept. 11 survey of regional manufacturers found a downturn in demand, and a general sense that a rebound will not be likely until the second quarter of 2002; Dr. Crone added that a ripple effect from Sept. 11 might very well push that rebound back further. In the time since the terrorist attacks in New York and Washington, retail and auto sales have slowed significantly, and the travel/tourism markets have been hit hardest; in the metro Philadelphia region, hotel occupancy rates are at the break-even point. Lower interest rates are bolstering the housing market. “In the long term, the fundamentals (for our economy) are good,” he said. “The short term is more difficult to determine.”
Current conditions: 55
Forecast: Worse
Banking
Thomas Bracken, CEO of Sun Bancorp, observed that the industry is in a state of uncertainty. The low interest rates that benefit consumers also hurt banks in some part: liability rates rise in inverse proportion to rate decreases, which pressures profits for banking institutions. Economic distress prior to Sept. 11 caused commercial customers to slow their plans. Consumers display a “very, very heavy slowdown, almost to the point that they’re not in the market”; banks are experiencing a decrease in home refinancing, home equity loans, and auto loans. “The loan business isn’t very dynamic right now,” said Mr. Bracken, who also observed that the industry is staffed by workers who have not been through recessionary times. He suggested that New Jersey could experience some upturn from New York businesses seeking to relocate. He offered the thought that a different landscape will emerge during the coming six months, with some contraction in the banking industry, which is “hitting the revenue wall.” Mr. Bracken closed with the observation that “the customer will be the beneficiary” as banks compete for business.
Current conditions: 50
Forecast: Worse
Health Care
Dr. John Tedeschi, board chair of Children’s Health Associates, offered a physician’s point of view on the health care industry. “The patient is alive,” he reported, noting that the quality of health is challenged. Although some view the medical profession as recession-proof, challenges nonetheless exist. Anticipated government investments in the industry may be delayed after the Sept. 11 attacks, which also have exacerbated the national nursing shortage. Hospitals operate on “extremely tight margins,” with growth dependent on endowed revenues. Dr. Tedeschi reported that “if a doctor’s income were an EKG, it might be time to call a code.” Since 1996, interns’ income is down 11%; general practitioners have seen a 14% decrease; family practitioners have experienced a 4.5% increase; pediatricians, a 1.9% increase, and obstetricians, a 7% decrease. Physicians face an inability to use technology to their advantage, but new physicians recognize the need to view their profession in an entrepreneurial manner.
Current conditions: 75
Forecast: Same
Manufacturing
Dr. Richard Klein, former CEO of Sybron Chemicals, reported that New Jersey manufacturers are not as affected by the regional economy, since their business relies largely on exports. State regulations, however, do have an impact on their ability to operate easily. “We all deal in the cyclicality of our businesses,” he said. Pricing pressures have increased due to the economic downturn, and a stronger dollar is increasing competition from imports. Labor is more available, but less in demand. New Jersey manufacturers still employ 13% of the workforce, but employment in this sector continues to drop. Dr. Klein suggested that New Jersey manufacturers need to learn to export in order to grow their businesses. Despite some apprehension about a new government in Trenton, he sees “some daylight in the future.”
Current conditions: 65
Forecast: Better
Real Estate
George Sowa, senior vice president of Brandywine Realty Trust , spoke of an equilibrium in the real estate industry: rental rates are holding firm, tenant retention rates are high, and overbuilding new construction is not an issue. “The pendulum has swung back to the middle,” he said. “Real estate is very much a reactive business.” He reported that the South Jersey rental market has not seen any spikes in its rates; in the long term, Mr. Sowa suggests that southern New Jersey will see some rental growth as companies consider decentralizing their operations as a result of the Sept. 11 attacks. He suggested that areas of job growth include information technology, pharmaceuticals, casinos, and logistics, and added his optimism for some improvement during the coming six months.
Current conditions: 75
Forecast: Better
Temporary Staffing
Doris Damm, president of ACCU Staffing Services, reported that many employers are facing staffing challenges due to military reservists being called to active duty. She said that 8% of the temporary staffing workforce had been called to duty, with another 10% possible. The aftermath of Sept. 11 is raising religious and racial harassment issues in workplaces across the nation, which is increasing legal fees for employers. Ms. Damm suggested that the fourth quarter could be strong for the industry, despite an increase in available workers. Labor shortages in nursing and computer science continue, and the demand for project-based staffing is increasing.
Current conditions: 70
Forecast: Same
The next Outlook will be held Wednesday, Jan. 16, at the Regency Palace in Mount Laurel. To register, contact the Chamber of Commerce of Southern New Jersey here
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