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©Rutgers University 2000


2002: Year of the Comeback?

by Mike Sepanic

Could there be glimmers of light shining through the bleak clouds dominating the economic horizon?

According to the in-depth testimony provided by a panel that included the president of the Federal Reserve Bank of Philadelphia and three prominent business leaders, both the nation and southern New Jersey are poised precariously on the brink of a rebound from recessionary times. Optimism must be restrained and cautioned, however, as threats to economic recovery loom as large as opportunities.

More than 350 executives attended a special session of the Rutgers-Camden Quarterly Business Outlook on Jan. 16 to receive a first-hand overview of the region’s economic health and its likely future in the new year. On average, the business leaders rated current economic conditions from a high of 90 to a low of 50, with no one predicting worsening conditions for the first half of 2002. 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-based law firm of Flaster/Greenberg and the Chamber of Commerce of Southern New Jersey.

The following summarizes the report of each executive.

Economic Overview

For the complete transcript of Dr. Santomero's testimony, visit here

Dr. Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, offered his prediction that the regional and national economies will begin their recoveries in earnest by the summer, provided that a bevy of risks don’t derail the engine before it picks up steam. Noting that recent federal fiscal stimulus packages, coupled with low interest rates, have created favorable conditions for revitalization, Dr. Santomero nonetheless warns that an array of factors must be addressed, including a backlog of excess inventory. "Decumulation of inventory may take longer than planned," he said, noting that a "better than expected" holiday retail season is balanced by the concern that consumers could retrench their spending habits in the face of sharp layoffs. Overcapacity still plagues the telecommunications industry. Dr. Santomero observed that the U.S. economy "does not operate in a vacuum." While the global economy is poised for growth, the lingering Japanese recession and destabilization in Argentina must be addressed.

Southern New Jersey is expected to fully participate in the economic recovery, which represents a distinct difference from the most recent recession. "Usually, South Jersey downturns sharper" than the rest of the country, said Dr. Santomero. As a result of the state’s evolution from a manufacturing- to service-based economy, however, New Jersey is tracking closely with the national economic picture. The pharmaceutical industry is the fastest-growing sector in the state, which enjoys "a huge advantage" due to New Jersey’s high concentration of scientists. Dr. Santomero also reported that New Jersey seems committed to building its base of high-tech entrepreneurs, which would help the state to participate in growth in the technology sector.

"2002 is a turnaround year," predicted Dr. Santomero. "Southern New Jersey should recover along with the nation and enjoy a healthy period of sustained growth by year’s end." Despite some "anxious months" in the very near future, the positive economic fundamentals of the state are expected to prevail.

Current conditions: 55
Forecast: Better

 

Defense

Michael Camardo, executive vice president of Lockheed Martin Technology Services, offered positive outlook on the prospects for defense contractors in southern New Jersey. "The health of the industry is good," he said, anticipating that employers Lockheed Martin, Computer Sciences Corporation and L3 Communications will increase their South Jersey workforces by five-to-ten percent during 2002. Across the nation, companies are enjoying a 12% increase in defense appropriations, due to such factors as a new administration in Washington and increased awareness of defense needs after Sept. 11. "Most of our military systems are old," said Camardo. "Technology is much more important in a war today." As a result, increased spending is being invested in the procurement of new systems; increased benefits for military personnel; and the upkeep of existing systems. Across the metro Philadelphia region, the defense industry employs approximately 16,000 workers and supports hundreds of small businesses.

Current conditions: 90
Forecast: Same

 

Financial Services

J. William Mills, president of PNC Bank’s Philadelphia/South Jersey region, reported on an industry that, in his estimation, "has never been stronger." Agreeing with Dr. Santomero’s assessment calling for a midyear recovery, Mills suggested that the rebound will be "U-shaped" and somewhat longer in its complete arrival. "The Federal Reserve has done an incredible job of lowering interest rates," he said, noting that America’s success compared to Japan’s continued recession after 10 years of interest rate cuts is a testament the strength of banking in the United States. While the recession of 1989-90 was grounded in real estate transactions, Mills said that concerns in this cycle are "very broad-based." Larger financial institutions took fourth-quarter losses in 2001 in an effort to position themselves for 2002; areas of concern include hotel, retail, and golf course construction. Mills further suggested that the automobile industry "could be key" to the economic recovery, since 14% of the national economy in some way ties in to that industry.

"Southern New Jersey is in an incredibly good position in an incredibly competitive market," observed Mills of the area’s financial industry. Much of that strength is due to diversification of product offerings and services. He noted that PNC Bank serves 28% of its customers online, and through a network of ATMs in Wawa convenience stores.

Current conditions: 70
Forecast: Same

 

Real Estate

Gerard Sweeney, president and CEO of Brandywine Realty Trust, reported that "real estate signals are mixed, but the prospects for recovery are there." Noting that real estate tends to be a lagging indicator of economic conditions, he said that demand for office space and capital investment by companies has declined. Continued job cutbacks suggest prospects of slowdown in demand for an industry that lost office space in the Sept. 11 attacks and saw no significant net absorption in demand.

The good news, according to Sweeney, is that the new supply of office space will not outstrip job growth. Construction projects committed prior to the downturn will not all deliver in 2002; the 2.9 million square feet set for delivery in the region during 2002 is not overly significant in the context of more than 60 million existing square feet of overall inventory. Favorable interest rates keep borrowing rates low, and tenants – unsure of long-term space needs – are renewing leases, which increase profit margins for space providers. The real estate industry "hasn’t begun to tap" the opportunities offered by technology. Continued corporate cutbacks and an increase in subleased space, however, could affect the rebound adversely. Still, Sweeney foresees "continued equilibrium" in the industry.

Current conditions: 50
Forecast: Better

 

The next Outlook will be held Tuesday, Apr. 16, at the Regency Hotel in Mount Laurel. To register, contact the Chamber of Commerce of Southern New Jersey here.

 

 

 

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