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by Dave Gardner

Optimism with a touch of cautious sobriety mark the economic forecasts from a lineup of distinguished analysts as America marches into yet another new year.

Calendar year 2017 produced fertile ground for future commerce within America’s $19 trillion-plus GDP with 2.3 percent growth, according to Gus Faucher, senior economist with PNC Bank. He is therefore forecasting a measurable GDP improvement for 2018, with 2.7 percent growth and most economic sectors producing a healthy showing.

He predicts that housing starts and home pricing will tick upward, and the vital price of crude oil will actually decline to around $50-plus per barrel on the world markets. Traditional retail will continue to evolve, along with the associated retail real estate interests, but old economic sectors such as the coal industry will ebb as the dynamics of new industries, such as natural gas, flex their energetic muscles.

“Of course, a war in Korea could end all bets on forecasting the economy,” said Faucher.

The Congressional effort toward changes in the federal taxation system according to Faucher, will also help to provide a bump upward with commerce. However, he warns that the current effort is not genuine tax reform, because it will undoubtedly increase the national debt, thereby producing only a short-term stimulus.

Faucher also remarked that the Federal Reserve appears to be following a cautious, but genuine pro-growth agenda in the manner of the past decade. The year ahead for legislators will probably witness spirited debate about the financial implications of massive baby boomer retirements, how to pay for promised benefits, and the amount of financial support to deliver in the years ahead.

Included in this Congressional discussion will be societal questions about what American society will tolerate with the number of uninsured for health care, including within retirement.

“No real efforts have been made to cope with rising health care costs,” said Faucher. “Washington has conducted absolutely no conversations about this issue because we do not yet have the political will to talk about this very difficult situation.”

Faucher added that there are no factual indications off-shored manufacturing jobs will return in large numbers, as promised by President Trump. The true focus within manufacturing has become the use of machines to replace unskilled human workers, thereby making workforce development the key for employment within technology-based manufacturing.

“Labor reductions from robotics will become increasingly common in the days ahead, and total manufacturing employment may actually drop,” said Faucher. “The big question is how to help those left behind by all of these market changes.”

Tax reform bump

Washington’s efforts at tax reform will undoubtedly fuel some growth for Pennsylvania’s $531 billion GDP, predicted Gene Barr, president and CEO of the Pennsylvania Chamber of Commerce.

However, Barr warned that to a large degree anticipatory returns already have been taken out of the reform’s final effects, and he questions if the national economy will receive the mass economic bump forecasted by Washington. In addition, the resultant increase in the national debt will inevitably serve as an economic brake, with any positive GDP growth actually dependent upon how each state has made itself competitive for business.

Barr also reported that the economic agony of the Great Recession is finally fading into the rear-view mirror of business.

“Overall, our chamber members are commenting that their businesses are doing quite well,” said Barr. “They are optimistic despite the apparent inability of our lawmakers to get out of the way.”

Concerns for 2018 voiced by chamber members, according to Barr, include the negative effects of President Trump’s demeanor, changing American demographics and a frustrating inability to fill skilled jobs. Federal immigration policies should include attention to workforce needs, with the reality that there is no evidence Trump can be successful at bringing back offshored low-skill manufacturing jobs.

“Automation use is sure to expand during 2018, and workforce preparation must focus on higher end jobs that require education and specific skills,” said Barr. “This is a vital part of the economic development picture.”

He warned that a high school diploma is now insufficient preparation for most jobs, although a two-year tech degree or certificate of competency increasingly opens many skilled-employment doors. As all of these scenarios play out during 2018, unknowns that could cause mass disruption are plentiful, such as a war in Korea, tax reform side-effects and terrorist or cyber-attacks.

“We’re also concerned about the divisiveness around the country,” said Barr. “I personally believe divisiveness is more widespread than any time since the Civil War era.”

Technological disruptions

The non-profit trade association CompTIA has reported that tech employment within the United States now exceeds 6.7 million people. Tech firms are producing more than seven percent of the national GDP, and generating 11 percent of the total national payroll within the private sector. 

Within this surging economic engine expectations are strong for increased disruption in large markets such as government, health care and financial services, according to Kris Jones, founder and CEO of LSEO. Old entrenched ways will increasingly be replaced by new technologies such as voice recognition and artificial intelligence as big tech companies continue to enter new industries with more resources than these industries want to address.

“Get ready for more and more conversational devices that trigger action, such as email by voice,” said Jones.

He further forecasts that 2018 will include an increased integration of digital commerce. The survivors of this disruption must operate brick and mortar plus a digital presence as they cash in on sales technology with efficiency and integration.

“Voice technology that allows facial recognition for security will also begin to make digital passwords obsolete,” said Jones.

On-demand video services such as Netflix will continue to prosper during 2018, with more original content available to viewers than ever before. This, according to Jones, will be matched to rising usage of cryptocurrency such as bitcoin, as business units such as financial services and health care become ripe for inclusion with these digital technologies.

“Resistance to these and other forms of digital disruption is ebbing because of recognition that the resultant efficiency and convenience are good for business,” said an enthusiastic Jones.

Strategic policies?

Any economic forecasts about 2018 must include information that examines trends within the nation’s bustling health care system. During 2017, according to the Center for Medicare and Medicaid services, domestic health care spending exceeded $3.3 trillion, accounting for 17.9 percent of the nation’s GDP.

Justin Matus, Ph.D., associate professor and director of MBA program for the Sidhu School of Business and Leadership at Wilkes University, also serves on the board of directors for Wilkes-Barre General Hospital. He accused Washington of only being concerned with movement of insurance dollars, while no strategic attempt has been made to actually tackle health care policy and system-wise rising costs.

Dr. Matus further declared that the percentage of domestic GDP spending for health care is out of control, while all talk about healthy competition within providers is a falsehood. Only pseudo competition exists, because system size rules as limited number of massive health care systems do battle over a limited number of patients.

Merger, consolidations and vertical integration will therefore continue to be paramount within complex health care business strategies as provider systems strive to do business under one roof. Dr. Matus therefore forecasts that the drive toward increased system size, with decreasing competition, will dominate during 2018.

According to Dr. Matus, an interesting systemic change may be occurring in Denmark as front-line caregivers unionize. This is being done to counteract the loss of power being experienced by general practitioners, and Dr. Matus believes a similar movement could take root here during 2018.

“Value-based medicine is the thrust in America as the big health care systems seek more bang for their buck,” said Dr. Matus. “This is decreasing the power of the front-line physicians, but based on what I have seen overseas the care givers are reacting to regain some of that control.”

Dr. Matus also forecasted that health care will see an increased use of artificial intelligence for diagnosis. In many cases digital technology can interpret tools such as diagnostic scans better than a human, making this change predictable within the nation’s care system.

“On a negative note, I also believe there no basis for optimism that the general public is going to take wellness seriously,” said Dr. Matus. “Only reduced demands for health care will reduce the amount we as a society are spending.”

Taxation smiles

On the Pennsylvania manufacturing front, industry is generating more than $2.1 trillion in total GDP. This scenario is sure to evolve as infrastructure renewal, regulatory rollbacks and tax reform provide fertile ground for manufacturers, according to David Taylor, president and CEO of Pennsylvania Manufacturers Association.

Washington’s tax changes, according to Taylor, have a reasonable chance of bringing home $2 trillion to the United States that has been stranded overseas due to lower corporate tax rates abroad.

“I’m quite sure tax reform will not be just a financial iceberg for the wealthy,” said Taylor. “Corporations are being put into better investment situations, and this will eventually benefit everyone.”

On a specific note, manufacturing’s use of robots is sure to increase, according to Taylor. These technologies are proving to be transformational in industries such as logistics, and are expanding daily into the manufacturing sector as technologies such as programmable controllers advance.

“Efficiency and productivity, plus safety, are the goals within manufacturing, but the new technologies definitely are causing thousands of lost jobs with new jobs also being created,” said Taylor. “This can be hard for people, but history clearly shows ongoing change with employment is normal. Political infighting about this is not good, because we must find new ways to use our workforce skills, intellects and talents.”

Demographic changes

According to the National Center for Education Statistics, during the academic year 2014 to 2015, total revenues at degree-granting postsecondary institutions within the nation totaled $567 billion in current dollars. This unfolded within a labor-intensive economic sector dealing with rising operating costs, such as health care insurance, and demographics challenges including a 10-percent drop in the number of 18-year-old potential students.

“We knew this big demographic challenge was coming,” said Thomas Botzman, Ph.D., president of Misericordia University. “An 18-year-old can only attend one school at a time.”

To counteract this and other difficult economic challenges facing the nation’s colleges, schools must learn to better market themselves, according to Dr. Botzman.

The national tax reform is also creating an environment that may be damaging to collegiate budgets and associated enrollments, despite the factual evidence that most four-year degrees have not lost their value.

“Four-year graduates are now earning $500,000 to $1 million dollars more over a lifetime as opposed to no college,” said Dr. Botzman. “That’s a pretty good investment.”

He added that enhanced abilities to read and think critically will continue to be vital as the American economy evolves in the 21st Century. Questions about skill acquisition for lower socio-economic strata must also be addressed.

“I fear Washington is now stacking the deck against our colleges,” said Dr. Botzman. “That is an unfortunate move, because for the nation to prosper government must invest in people.”