A Recovery in Full Swing
by Mike Sepanic
Southern New Jersey’s economic outlook is promising, but employment and health care woes cast shadows on an otherwise sunny forecast.
More than 300 executives attended the second 2004 Rutgers-Camden Quarterly Business Outlook on April 27, when five industry leaders delivered reports of a reasonably stable and upbeat economy challenged by slow job growth, rising health care and insurance costs, and, in some instances, the lack of qualified employees to hire.
The panel agreed on a positive outlook throughout the spring and summer. Rutgers-Camden business dean Milton Leontiades moderated the discussion which, for the first time, welcomed a representative of the legal services sector.
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 offered good news for the Garden State.
The results of a first-quarter survey of southern New Jersey businesses finds “growth spread fairly widely” across the region, with the index of overall business activity at its highest since the survey started in 1991. “The recovery in New Jersey has gained a solid footing,” he reported. “The labor market is showing substantial improvement.”
Crone noted that one-third of the firms responding to the FRBP survey added workers during the first quarter, with 45% anticipating similar activity during the next six months. While the job market lags the national recovery, New Jersey is enjoying reasonably good employment levels, with an unemployment rate of 5.2%
Crone offered his view that the housing market has done “spectacularly well,” but is not likely to add much more to growth during 2004. He anticipates that job growth will continue throughout the year.
Current conditions: 85
Forecast: Better
Banking
Michael Quick, chair and CEO of Equity Bank, observed that low interest rates and an influx of banks into the region has produced a fiercely competitive market that benefits the consumer.
He suggested that the corporate real estate sector is in “better shape than ever,” and that residential real estate has helped to fuel growth. The commercial/industrial sector also seems to be gaining ground, with 2004 shaping up to be the best year for industry in some time. The historic lows for interest rates also are helping the stock market continue to do well.
Still, not everything is ideal. Quick offered his prediction that interest rates will tick upward. He noted that, while New Jersey’s job growth is fifth in the nation, jobs continue to take longer to find and that newer jobs are created at lower pay scales. New Jersey state government financing “falls heavily on individuals, and must be resolved.” An increase on consumer debt hinges on floating rates, and as those rates rise, money that could be spent to support the economy instead will be applied against debt.
Quick reported that inflation could rise if global factors collided in certain fashions. Nonetheless, his outlook remained optimistic.
Current conditions: 70
Forecast: Same
Legal Services
Stephen Greenberg, shareholder with the law firm Flaster/Greenberg, noted that the legal services industry is a large regional employer that experienced a 3.5% increase during 2003 over 2002.
Despite such growth, the industry is experiencing challenges from increased expenses. Malpractice insurance costs have risen 30% during the past two years, while health care and technology costs similarly have experienced dramatic growth. “Legal services is a technology-driven industry,” said Greenberg, noting that the availability of attorneys on a 24/7 basis increases stress on staff, but also increases overall efficiency.
He delineated five general practice areas with the southern New Jersey industry. The real estate area will enjoy strength due to development activity in the City of Camden and low interest rates, as well as rising legal activity from local governments seeking to limit development. The corporate area is seeing a turnaround in business as new businesses launch.
The bankruptcy area is “particularly busy” in South Jersey, with personal bankruptcies at “near-record levels.” The health care area is strong, and expected to get stronger due to intense regulation in that industry. Finally, the litigation area remains busy, although Greenberg noted litigation as “a drag on the economy and very expensive.”
Current conditions: 72
Forecast: Better
Health Care
David Friedman, president of benefits provider RSI, offered insight into the factors driving the escalating cost of health care. He noted that the difference in general health care cost between two consecutive years (known as “trend”) averages 14 to 16%. Pharmacy trend averages 15 to 17%, while dental trend averages 7 to 9%.
Friedman observed that such increases appear especially high when compared to 2% increases in most other sectors, and noted that “health care is not a free market economy. We don’t comparison shop for our medication and hospitals, because we’re not spending our own money. Most Americans take the general view that health care is a right regardless of your ability to pay.”
Employers are responding to these increases by raising the co-pays and deductibles in their policies; asking employees to pay higher rates; and shopping among insurance companies for competitive rates. Friedman suggests that “the biggest trend coming is consumerism,” noting that consumer-driven health plans, such as HRAs, would have employers provide money into employee accounts, thereby requiring employees to make conscientious decisions about their health care purchases.
In order for this tactic to succeed, information about cost and quality will need to make available on a wide scale. Such activity will have a long-term moderating influence on health care costs, but not a dramatic impact. Friedman concluded that health care cost increases are “not a positive force for the economy and job growth.”
Current conditions: 40
Forecast: Same
Defense
Gregory Roberts, president of L-3 Communication Systems-East, opened with the statement that “the South Jersey defense industry is creating products and services for the men and women working to keep world peace.”
He added that southern New Jersey leads in continuing legacy programs while also developing new technologies. Lockheed Martin in Moorestown is the region’s largest defense manufacturer, with such credits as serving as prime contractor for the U.S. Coast Guard’s Deepwater program. Lockheed Martin is currently hiring and likely will do so even more aggressively as the company wins more contracts.
Similarly, L-3 Communications is growing at an annual rate of approximately 10%, and also seeks to hire employees. Roberts suggested that the lack of scientists and engineers in the metro Philadelphia region hinders the sector’s ability to grow. He noted that L-3 has a 103-year history in the City of Camden.
Current conditions: 90
Forecast: Same
The next Outlook will be held on Tuesday, July 20, at the Clarion Hotel
and Conference Center in Cherry Hill. For more information, contact Samantha
Collier.
Previous Quarterly Business Outlooks
- Fall 2003
- Summer 2003
- Spring 2003
- Winter 2003
- Fall 2002
- Summer 2002
- Spring 2002
- Winter 2002
- Fall 2001
- Summer 2001
- Spring 2001
- Winter 2001
- Fall 2000
- Summer 2000
- Spring 2000
- Fall 1999
- Summer 1999