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©Rutgers University 2000

HEAT WAVE CONTINUES FOR SOUTH JERSEY ECONOMY

by Mike Sepanic msepanic@crab.rutgers.edu

The forecast for South Jersey's economy at mid-year? Hot, with no sign of cooling off.

Such is the composite testimony of nine business leaders from key South Jersey sectors during the quarterly South Jersey Business Outlook Conference on July 15. The executives shared their perspectives on the region's economic performance during the first half of 1999 and offered their predictions for the balance of the year.

Six of the experts suggested that the economy would sustain its current level of activity during the coming six months. Representatives from the gaming and marketing/advertising industries felt that conditions would improve during that time, while a health-care industry leader foresaw a downturn in the economic climate.

Dr. Milton Leontiades, dean of the Rutgers University School of Business at Camden, moderated the panel. Commerce Bank hosted the event at its Commerce University location in Mount Laurel.

The following synopses provide the reports of each industry executive:

Banking
Robert Falese, executive vice president for Commerce Bank, noted that although the banking industry is enjoying good times, areas of concern exist. While local banks reported increased second-quarter profits, some of those numbers reflect one-time gains on sale of assets; in terms of capital growth, operating profits are leveling off. Problem loans and non-performing assets are increasing, which is causing loan officers to "take a tighter view" of new loan applications. Delinquencies are at an all-time low, despite a surge in consumer debt. Predicting continued strength for the next six months, Falese advised business owners to prepare for a gradual "flattening out" of economic conditions by monitoring their cash flows and real profits.

Construction
Bruce Paparone, executive vice president for the Paparone Corporation, reported that overall new home sales were declining, largely due to the scarcity of available land and building materials. Demand remains high: Gloucester County sales rose 10% during the past quarter, while suburbs in Philadelphia finally have started to cool after a long period of "red-hot" sales. Likening the decline to "a relief valve that lets steam out of an overheated engine," Paparone expressed his concern about the ability to create new housing in New Jersey. Citing state-imposed restrictions on growth, he observed that economic advancement could be difficult if workers could not afford housing. Economic Outlook Ted Crone, vice president of the Federal Reserve Bank of Philadelphia, observed "little change" in South Jersey's economic conditions during the past quarter. While the region experienced average job growth of 1.5%, there was considerable variation within that territory: Burlington/Camden/Gloucester counties enjoyed growth of more than 2%, while growth reached only .5% in Atlantic City, .25% in Vineland, and virtually none in Trenton. Statewide unemployment rates rose to 4.7% from 4.1% in February, with high areas of joblessness in Vineland and Atlantic and Cape May counties; Crone anticipates that seasonal employment will improve the numbers for shoreline communities. Overall, business activity in southern New Jersey grew slightly faster during the year's second quarter than in the first. Crone expressed his optimism for the future.

Gaming
Alex Figueras, a senior manager for Ernst & Young, offered a "very optimistic" report on the gaming industry at the start of the summer season. Significant activity includes a possible new casino on the site of Trump's World Fair; the construction of the Mirage on the H-tract; and a 16.1% increase in revenues at the Hilton. He added that non-casino revenue seems higher this year than during the same period in 1998 and that recent studies on the impact of Delaware slot machine activity show a minor ($100 million) loss in Atlantic City revenue. His forecast? "All indicators are positive" for the coming six months.

Health Care
Richard Miller, president of Virtua Health-West Jersey Health Systems, reported that "approximately 60% of New Jersey's hospitals are losing money." Many of those hospitals are using the interest on their investments to cover losses, a practice that Miller noted as being finite in its ability to maintain viability. Cautioning that "we are living on a shoestring in health care," he stressed the need for health-care providers to return to their core mission of service to patients. Despite community protests, Miller warned that "hospitals will close. That is coming." New Jersey charity care payments remain problematic for South Jersey hospitals, which receive "very little" of the $320 million statewide allocation. Managed care also continues to deny patient care, a cost that many hospitals currently absorb, he said. Many area hospitals will renegotiate their managed care contracts during the coming six months.

Marketing/Advertising
Linda Rosanio, CEO of The STAR Group, reported significant increases in advertising sales by most media outlets during the past quarter. Due to increased demand, many outlets raised their rates. Automotive, beer/wine and health-care sectors saw an appreciable increase in their advertising activity, while computer manufacturers, utilities and airlines scaled back.

Port Authority
John Maier, assistant executive director for the South Jersey Port Authority, suggested the strong likelihood that the region's ports would continue to grow during the coming months. The South Jersey ports have experienced a 7.6% increase in cargo tonnage and have become the leading North American destination for oil, steel, paper, wood and meat imports. Export tonnage across the nation has declined. Regionally, challenges due to new labor demands and transportation difficulties born out of the Conrail/CSX/Norfolk Southern merger are challenging the ports. Maier noted that such activity as the cruise ship terminal, the dredging of the Delaware River, and the possibility of securing the U.S.S. New Jersey has created excitement along the waterfront. The possibility of Bermuda cargo transferring from New York to Salem also bodes well.

Retail
Mindy Holman, vice chair of Holman Enterprises, reported that car manufacturers continue to merge; she raised the possibility that only five companies could be left at the end. Dealerships also continue to merge and offer public stock, although those stock prices remain low. The Internet remains a tool for car buyers, but Holman cautions against any assumptions that e-commerce will dominate the auto industry; she noted her experience that the Internet provides product information that drives the consumer into the showroom. Holman spoke of "strong, but not record-breaking" car sales in South Jersey during the first half of 1999.

Temporary Services
Elaine Sweeney, vice president of ACCU Staffing Services, reported "very strong growth" for her industry during the year's first two quarters. With workers in demand, employers have learned that classified advertising alone will not fill their staffing needs. The lack of transportation for some workers remains a barrier to meeting employer demands; Sweeney reported that ACCU Staffing Services provides transportation to get workers from Camden, Philadelphia and Trenton to their work sites.

The next Rutgers-Camden South Jersey Business Outlook will be held on Thursday, Oct. 21. For more information about this free event, contact Paul Pressley at (856) 225-6216 or pmp41@crab.rutgers.edu.

Previous South Jersey Business Outlook Conferences

• Current Outlook
• Fall 1999