economists

Bustling businesses and bursting bubbles: The economists’ view of 2016

By Vincent Dajani

The road to recovery hasn’t been easy since the economic bust of 2009. It’s nearly seven years later, and it’s not yet safe to say that we’ve made it to the other side. In fact, experts are now billing our current period of recovery as one of the slowest in American history. But, with a new year on the horizon, businesses may finally see some significant growth. Leading economists offer their insights on major sources of concern for business owners, and industries with enormous potential for growth in the coming year.

Looking up

“The economy is performing well. It’s best seen in the job market. It’s creating over 200,000 jobs per month. That translates into 2.5 [million] to 3 million jobs a year,” says Mark Zandi, chief economist at Moody’s Analytics in Philadelphia.

“It’s not completely back to health though. Unemployment is still elevated too high. Interest rates are still very low. The bank controls are still close to zero. We’re not all the way back from the great recession, … [but] I’m optimistic for 2016.”

What does this mean for businesses? Well, some industries seem to have a bright future ahead. “Growth is dominated by parts of the economy that are interest-rate sensitive. Recently, we’ve seen a surge in auto sales,” says Anirban Basu, CEO and chairman of Sage Policy Group, Inc.

Peter Morici, economist and professor of business at the University of Maryland, believes that construction will show an enormous amount of growth in the coming year, “Millennials like to live near cities, and … [the] construction sector is going to show real life.”

Along with the automotive and construction industries, the technology sector seems to be perfectly positioned for great growth in the coming year. “Technology and propulsion is in a good place. Tech that makes the world work more efficiently … you’re on the right side,” Morici says.

Because of the surge in low interest rates and a feeling of increased economic stability, consumer spending has improved as well. Consumers are riding a new wave of confidence, and as a result, businesses that focus on those household consumers can expect good things in 2016, says Zandi. “More households are starting to form because of the job market. If you’re a business that sells mostly to domestic American households, you should do well,” he says.

The long road to recovery

The economy may finally be on the upswing, but according to recovery projections, it may still have a long way to go. “We are in our 75th month. The last three recoveries have lasted an average of 95 months. My sense is that this recovery will last more than 95 months and will come to challenge the longest economic expansion in U.S. history, which lasted 10 years,” says Basu.

And, despite the improving economy, there is always the potential for another economic bust. In fact, a zero-percent interest rate should really be cause for concern, says Basu. “Those bubbles are never obvious until they begin to burst. The Federal Reserve is in a no-win situation, so they’re going to tread lightly. They’re going to increase interest rates at a slow rate. Rapid increase of an interest rate would quash the real estate boom. It would quash the recovery in auto sales, and slow down the economy and job growth.”

Zandi agrees that the federal government needs to pay closer attention to its impact on the economy in these late years of recovery. “Federal government employment continues to decline. That’s been a constraint on the job market. [And] if I had to point to an area of concern, I’d say it’s student financial debt. An incredible 15 percent of that debt is in default.” This troubles Zandi because, he says, student financial debt could cause a decrease in consumer spending.

Another major concern for businesses that economists point to is healthcare. “There’s going to be less competition in the health insurance market, so there will be a hefty increase in insurance premiums. Business owners need to think about their healthcare spending,” says Basu.

While there is cause for concern, Morici believes the negative trends that are often talked about may just be part of the normal cycle. “American history repeats itself,” he says. “Consumer confidence goes up and down. The economy is going to grow a little more robustly in the second half [of the recovery] than it had the first six years. We just had a very big quarter. Having a slower third quarter is still consistent with that.”

In fact, the estimated potential for growth in the coming year makes 2016 one of the best times to be aggressive, says Zandi. “Businesses have been very cautious in terms of their hiring and their investment. They still haven’t fully engaged. They’re not taking the same risks. Businesses in general need to start taking those risks that lead to faster growth. If a business person was to pick a time to take a chance, now would be the best bet.”

 

We asked local business leaders what their business landscape looks like, and how they are preparing for 2016.

Jonathan Murray

Jonathan Murray
Managing Director
UBS Wealth Management

“As I look to 2016, I feel pretty good. We’ve got a domestic economy that’s improving. We’re seeing good data. We’re seeing increased consumer spending and an improved balance sheet. In good times or in bad, we have to be there to help our clients know where to invest. Given the volatility, investing has been a prevalent question. Two of the things we do is help people answer the question, “Will I make it?” and “Do I have any blind spots that I’m unaware of?” We’ve got so much information today, and we’re overwhelmed by it. The financial advisory business is perfectly positioned to provide an aging America with counsel. In 26 years, I’ve never been more bullish about our industry and UBS. … We’ve noticed a dramatic change to technology that will continue in 2016. The changing ways that we communicate affect our businesses. It’s more important than ever that we are able to adapt to these changes.”

Joe BeneducciJoe Beneducci
President and CEO
ProSight

“We’re going to be successful in the industry by being able to really define the quality that the customer gets. This is the reason I went out to build a new company. I would never forgive myself if I just watched. We have acquired a team of people that all possess this capability in the segments we insure. We’ve also aligned ourselves with insurance distributors. Now with technology, we can determine value in everything that we buy. It’s no longer sufficient to say that we don’t want to bring value because the client will buy from us anyway. That sort of solution is coming to the insurance industry. That’s what we’ve done to plan for the future. People are willing to pay for it when they understand the value.”

Ray RastelliRay Rastelli
President
Rastelli Foods Group

“Over the last 40 years, we have been fortunate to maintain some level of growth — nominal at times, exponential at others — by forging long-term partnerships that carry us through an ever-changing economy. To maintain a profitable business outlook in 2016, our focus is two-fold: Service the existing partnerships that allow us to operate, and create new, lasting relationships with innovative partners that will increase our financial stability. From my experience, the struggles of a few industry-dominating corporations have always created openings and opportunities for privately owned companies and entrepreneurs to emerge stronger in the new market. Our challenge is to maximize labor and increase efficiencies, with the end-goal being to lower overall operating costs and increase the margin of each product.”

Richard ShurtzDr. Richard Shurtz
President
Stratford University

“What we’ve found is employers want students who can solve problems that they haven’t seen in a book before. They like practical knowledge. As we grow, something that’s also happening is that new people entering the workforce have different expectations for working. We’re growing at an organic rate. The school business operates out of alignment with the economy. When it’s a bad economy, the school business is better and vice versa. People need to quickly develop a new skillset — [so] they will turn frequently toward education — especially when the economy forces them to change. The school business industry will continue to grow. We tend to … have individuals who are trying to step up in their economic standing. The competition is not another school; it’s unemployment.” CEO

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The 2016 Outlook: Baltimore

Anirban Basu, CEO and chairman of Sage Policy Group, Inc., offers his predictions for Baltimore’s economy going forward.

  • The regional outlook for Baltimore is good. “Anne Arundel, Howard and Carol County [are some] of the most educated, highly affluent places in the country. Baltimore County keeps making progress. We see upward momentum in Owings Mills and Towson, along with Columbia.”
  • The unrest in Baltimore was bad for business. “There [are] a lot of high-profile investments that will not take place because of the unrest. … For those businesses that sell to the Baltimore City population (hotel operators, bar owners, restaurateurs) there should be significant concern. Especially with the seventh year of economic recovery — the unrest did not help that.”
  • Baltimore City has hope in 2016. “The next mayor needs to alter the perception of Baltimore so that it can be put back on track. They need to convince Baltimoreans that they have a reason to stay. Being a business owner in Baltimore City is something to be proud of. It means that one is engaging in a higher cause. It’s a historic, beautiful city worth saving.”

The 2016 Outlook: New York

Mark Zandi, chief economist at Moody’s Analytics, offers his predictions for New York’s economy going forward.

  • New York City is the place to be. “New York City has recovered all the jobs it lost in the recession and then some. This reflects the popularity of inner city living, particularly with millennials. Wealthy foreigners view NYC as a safe haven from the political and economic turmoil of their own countries. The apartment and condo markets are hot.”
  • New and old industries are seeing growth. “Growth is being powered by a thriving fintech industry, which is applying new technologies such as social media to financial services. NYC remains the center of global finance. Tourism is also strong, which is supporting lots of retailing activity.  The media and fashion industries are doing well, and professional services — from legal to accounting to advertising — are expanding.”
  • The city needs an upgrade. “City officials need to remain focused on educating the population, as finding qualified workers will become increasingly difficult. Upgrading the city’s increasingly dilapidated infrastructure is vital to remaining competitive. The region’s airports, roads and seaports are falling way behind those of other global cities. The recent increase in crime is also a concern, as without safe neighborhoods, the city will lose its luster for young professionals.”

The 2016 Outlook: Philadelphia

Mark Zandi, chief economist at Moody’s Analytics, offers his predictions for Philadelphia’s economy going forward.

  • Philadelphia has made a full recovery. “We recovered all the jobs lost in the recession and then some. It reflects the popularity of inner city living, particularly with millennials. It’s fostered by apartment development growth, and that’s bringing a lot of people into the cities.”
  • Certain industries should expect growth. “Leisure and hospitality has been doing very well. There’s a lot of buzz in that industry. It’s helping to support retail activity. Professional services … from legal to accounting to advertising. There’s even a budding technology sector. Millennials are very involved in IT, and that seems to be generating some activity and growth.”
  • Long-term growth depends on two things. “First, can we figure out how to reform the way we finance our educational system? It leads to disparities in school funding across the state. We need to get a piece of legislation moving to get that fixed. The second is funding of infrastructure, especially our transportation network. It’s falling apart and we really need to address that. If we want to promote the economic growth in those regions, we need to expand our transportation infrastructure. If we don’t, these will remain economic deserts.”

The 2016 Outlook: Washington, DC

Peter Morici, economist and professor of business at the University of Maryland, offers his predictions for Washington, DC’s economy going forward.

  • There will be growth in the private sector. “The private sector will end up building more. Just as we’re starting to see more toll roads, we may see mass transit, like in Washington with the railway. Mass transit will pay for itself if properly managed. Now, with roads being so congested and increased auto taxes, the tradeoff is that people are going to be willing to take mass transit.”
  • Government spending will undergo reformation. “Now, the money that gets saved is going toward infrastructure and the military. [Instead,] we’re going to spend money on urban infrastructure. Money will be spent in favor of building subways, etc. Both the internet and cell network has to be dramatically improved, and the things we use to interact on them will have to be a lot better.”
  • Innovative new businesses are coming. “We will continue to develop things that move people and goods, and help people interact more effectively with others. Things like Uber. If the taxi system thinks they’re going to keep out Uber, I think they’ll be in for a surprise.”

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