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©Rutgers University 2000

Squeezing Lemonade from Economic Lemons

by Mike Sepanic

During the past year, the stock market has lost a significant percentage of its overall value. Daily media reports about the economy offer more strum und drang than most operas. Job losses mount as consumer confidence stumbles.

And against this backdrop, southern New Jersey’s business leaders look forward to growth with a quiet optimism.

Whistling down the wind? Hardly. During the Rutgers-Camden Quarterly Business Outlook on Oct. 22, panelists acknowledged a ratcheting-down of expectations, and offered compelling evidence for maintaining a positive view. The panel suggests some improvement for the coming six months, while noting that current conditions leave room for improvement.

More than 225 executives received an overview of the region’s economic health and its prospects for ending 2002 on a high note. One business leader predicted worsening conditions for the next six months; that prediction was offset by two individuals suggesting improvement. Dr. Milton Leontiades, dean of the Rutgers University School of Business at Camden moderated the discussion.

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.

Economic Overview

Dr. Ted Crone, vice president of the Federal Reserve Bank of Philadelphia, opened his testimony with the admission that the economic forecast in April looked brighter than the reality during the summer. The economy’s fast start during the first quarter of 2002 turned out to be more anemic than it originally appeared, resting largely on the strength of the consumer.

Current weaknesses for the economy include soft business investments, lower employment, and a downturn in manufacturing at the end of the summer. Still, Crone says that the fourth quarter will be “relatively difficult,” with “some growth, but not fast enough.” He said that he has “no concern about a return to recession.”

The southern New Jersey region experienced the year’s most negative manufacturing climate during the year to date, according to a survey conducted by the Federal Reserve.

Current conditions: 75
Forecast: Same

Transportation

Paul Karvois, president and CEO of Jevic Transportation, Inc., noted that mid-summer strengths in trucking faded by the end of the season. “Transportation is a leading indicator for future economic growth,” he said, noting that manufacturing truck loadings are down .8% from August 2001, with overall manufacturing transports down 1.1%. Retail is down 2.1% in dry van tonnage, although flatbed truck loadings for construction increased .8%. Despite the uneven terrain, new truck production increased 39%, indicating optimism for future growth. Risks threatening that outlook include a spike in oil prices due to war, and labor contracts coming due for negotiation.

Current conditions: 40
Forecast: Better

Housing

Tom Paparone, president of Paparone Housing Company, reported excellent current conditions for the home construction industry, but noted that a lack of inventory in New Jersey presents serious challenges to sustaining that momentum. “Supply can’t keep up with the pace,” said Paparone, who called for greater cooperation between government and industry to help meet New Jersey’s housing demands. “We need to balance growth, not stop it,” he said. Anticipating that interest rates “will tick up a little,” Paparone nonetheless foresees continued strong demand for new homes. He noted that the average cost of a new home in New Jersey is $334,000, with average resale prices at $265,000.

Current conditions: 85
Forecast: Worse

Labor

Frank Spencer, executive secretary treasurer of the New Jersey Regional Council of Carpenters, said that the state’s construction laborers have logged more hours in 2002 to date than during the same period in 2001, despite the freeze on the construction of a new casino resort in Atlantic City. Spencer credits the entry of state Abbott funding into the pipeline for sustaining this labor market, noting that new schools, highways, and other public facilities will lead into a strong 2003 for labor.

Current conditions: 80
Forecast: Same

Banking

Norman DeLuca, managing director of commercial banking and financial services for FleetBoston Financial, observed a “very different operating environment, one of the toughest in 10 years” for the nation’s banks. Nonetheless, he offered a heartening report that many businesses are weathering the storm, with particular resiliency in the small- and middle-business markets that have disciplined themselves to take advantage of the rebound. DeLuca said that the banking industry learned its lessons from the downturn of the early 1990s, largely due to diversification and better risk management, and is sustaining its core businesses. Despite his optimism, DeLuca noted that “as long as uncertainty continues, there will be no catalyst for small- and mid-sized businesses to restart their engines.”

Current conditions: 25
Forecast: Better

The next Outlook will be held on Tuesday, Jan. 14, 2003, at the Clarion Hotel and Conference Center in Cherry Hill. The 2003 schedule of Outlooks also includes April 15, July 15, and Oct. 21. For more information, contact Samantha Collier .

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