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Optimism Prevails for South Jersey

by Mike Sepanic

Here’s a vote that everyone can endorse: unanimous optimism in the future growth of southern New Jersey economy.

During the fourth and final Rutgers-Camden Quarterly Business Outlook of the year on Oct. 19, approximately 175 executives listened as five industry leaders delivered reports about a wavering economy that nonetheless seems to have found its legs for the long haul.

According to the panel, 2005 should be a good year for business in southern New Jersey and the Delaware Valley. Rutgers-Camden business dean Milton Leontiades moderated the discussion, and noted that the “full house” of “better” forecasts was a first in the Outlook’s 10 years.

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, noted that his ratings were the same as in July. Slower-than-anticipated recent growth and a soft patch for the national economy contributed to a “difficult call on current activity,” but Crone maintained that “the underlying economy is good.”

In the Federal Reserve Bank of Philadelphia’s third-quarter survey of regional businesses, fewer southern New Jersey executives reported an increase in activity from the second quarter. CEOs and CFOs alike offered their perception that growth in New Jersey is slower than in the rest of the nation. Other challenges to optimism include skyrocketing fuel and health care costs.

Crone noted that “jobs are still being created in the nation and in New Jersey. Job growth never happens at a sustained rate. There are always ups and downs.” New Jersey’s unemployment rate is a full percentage point lower than at the same time in 2003, which Crone termed “significant.” He anticipates that the state’s economic growth will exceed 4% in 2004, and that there will be 2% employment growth during the period spanning mid-2004 through mid-2005.

Current conditions: 85
Forecast: Better


Banking
Thomas Bracken, president and CEO of Sun National Bank, said that southern New Jersey is experiencing intense competition as banks, credit unions, and savings organizations compete for the same business, all to the benefit of the customer.

Noting that “New Jersey may be one of the more competitive markets for banking,” Bracken reported that southern New Jersey’s economy grew modestly during the past few months. He described an “anti-business climate in Trenton” and uncertainty in the national elections as culprits for the restrained growth.

The banking industry is beset by growing regulatory burdens, according the Bracken, who said that the Patriot Act, Sarbanes-Oxley, and new state executive orders increase pressures on the industry. Staffing is another challenge, as quality bankers are in great demand and the shortage is problematic. When asked about this staffing shortage, Bracken offered that the industry needs to create an environment where people can use their talents, have pride in their company, and receive appropriate compensation. Unlike many other financial institutions, Sun Bank offers employee development programs in order to meet its staffing needs.

Banks also are working harder than ever to retain and attract customers. Bracken predicts more consolidations among banks, and better pricing, services, and products for the customers.

“We’re going through a cycle right now, but the banks that survive will be stronger than ever,” he concluded.

 

Current conditions: 75
Forecast: Better


Healthcare
Chester Kaletkowski, president and CEO of South Jersey Healthcare, offered a sobering assessment of the challenges facing the region’s health-care providers.

While medical insurance premiums increased 11.2% in 2004 – at a rate higher than inflation and outpacing salary increases – reimbursements to hospitals have not experienced the same raise. “New Jersey’s hospitals are the cornerstones of their communities, and many of them are fighting for their survival right now,” he said, observing that 65% of the state’s hospitals are in trouble.

Kaletkowski suggested that New Jersey’s hospitals would receive negative bond ratings due to their high debt, small increases in insurance reimbursables, continued expense growth, CEO turnovers, reductions in Medicare reimbursements, and flat enrollment. The last topic is more of a concern for northern New Jersey than the southern region, he added. Add in an ongoing shortage of nurses and huge increases in medical malpractice insurance, and the situation darkens further still.

When asked about the nursing shortage, Kaletkowski noted that many students want to enroll in nursing programs, but there is a shortage of qualified nursing faculty.

Nonetheless, Kaletkowski offered some bright spots. New Jersey offered improved funding for charity care in the current budget; hospitals are getting better at collecting their revenue; and U.S. Congressmen LoBiondo and Saxton secured approximately $42 million in additional funding for the state’s hospitals.

Kaletkowski concluded on a bullish note: “For every additional dollar spent on health care, citizens realize between $2.42 and $3 more in value.”

 

Current conditions: 60
Forecast: Better


Technology
Dr. James Yoh, president and CEO of Galaxy Scientific Corporation, opened his report with an overview of the evolution of information technology (IT), which has rendered largely obsolete typists and typewriter manufacturers.

Galaxy Scientific experienced a 30% growth in 2004, and is on track to realize 40% growth in 2004. Yoh noted that the IT sector will be driven by data retrieval, compression technology, and on-demand Web commerce. He illustrated compression technology by reporting that the electronic transmission of an x-ray currently takes 30 minutes; with the new technology, a doctor will be able to review the transmitted x-ray in mere seconds, thanks to the compression of the image by a factor of 2,000. On-demand Web commerce soon will allow DVD-quality streaming video to be purchased and enjoyed online.

Yoh credited the federal government for helping to lead the way in IT innovations. “The computer industry is a by-product of the space industry,” he said. “The federal government spent $59 billion in IT during the last fiscal year. This offers many major opportunities for business growth.”

In response to a question from the audience, Yoh reported that Galaxy Scientific does not outsource overseas. “It’s a fundamental business rule,” he said. “Product must stand on quality more than cost. With U.S. workers, we can better control the quality and the delivery time.”


Current conditions: 90
Forecast: Better


Real Estate
Joseph Coradino, president of PREIT Services, offered a unique perspective on southern New Jersey retail and real estate markets. Noting that his organization manages the Cherry Hill, Echelon, Moorestown, and Cumberland malls, he said that PREIT’s business is determined by the success of its retailers and consumer attitudes.

Coradino reported on an increase in sales in September, which he termed “impressive in the face of fuel cost increases and catastrophic weather.” Stores such as WalMart and Home Depot increased their sales by 11-13% in September, while high-end department stories (such as Nordstrom’s and Neiman Marcus) enjoyed 11% growth. J.C. Penney posted a 2.3% increase, but the traditional retailers (such as Macy’s and Sears) experienced a 5% decline.

In southern New Jersey, the Cherry Hill, Moorestown, and Echelon malls are enjoying double-digit increases in sales.

Reporting that commercial real estate is “set to experience the strongest property growth of any real estate sector,” Coradino noted that retailers are responding to an aging population by launching new stores and renovating existing facilities. He added that malls need to introduce unique lifestyle and entertainment concepts in order to attract new customers.

REITs – Real Estate Investment Trusts – have outperformed the S&P 500 with a 14% year-to-date return. Still, Coradino cautioned that it would be unrealistic to expect continued double-digit growth, as properties are becoming less available for purchase.


Current conditions: 80
Forecast: Better


The next Outlook will be held on Jan 6th at the Clarion Hotel and Conference Center in Cherry Hill. For more information, contact Samantha Collier.

 

 

 

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