Economic Winners and Losers
by Dave Gardner
As 2018 unfolds and the effects of the Great Recession become hard-learned lessons, an examination of NEPA’s economic sectors presents surprising diversity, as well as a few big guns.
Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, noted that warehousing and logistics is one area of commerce that has achieved phenomenal success within NEPA. This is fundamentally tied to the region’s strategic location on the east coast, coupled to the availability of effective highway systems.
The natural gas industry recovering methane from the Marcellus Shale has also achieved great success, despite the threat of increased product taxation. Gas well output has been prolific, while the shale’s supply of “wet gasses” that include propane and ethane represent another gold mine of opportunity for the heating, rubber and plastics industry.
“This overall development effort within the Marcellus region has been inhibited by permitting problems and the need to construct a better pipeline infrastructure,” said Barr. “But, things are moving in the right direction, and the economic development associated with the gas will only increase.”
Barr was firm that President Trump’s campaign promise to revive the coal industry is unattainable because of environmental regulations as well as changing market pressures. Companies that transition to natural gas from coal for heat and energy production find themselves with a cheap, clean and instant energy source, thereby guaranteeing they will never return to coal and its practical disabilities such as ash disposal.
In view of the reality that NEPA’s population is relatively aged, the region’s health care industry is coping with a bonanza of activity. Needs for trained caregivers continue to rise, creating endless employment opportunities as well as growing economic ties with formalized education.
Barr added that NEPA can expect to see its vast retail arena suffer as e-commerce increases and the effects of the buying appetites within the millennial generation intensify.
“The millennials prefer to purchase experiences as opposed to goods, and retail therefore must adapt to become a destination experience,” said Barr. “These changes in retail are creating many systemic implications, such as within the commercial real estate business where demand for big-box retail space has decreased.”
A technical diversity among businesses that helped protect the region from many of the crippling effects of the Great Recession still exists within NEPA, according to Ken O’Krepkie, regional manager with the Ben Franklin Technology Partners. The duo of “Eds and Meds” are still the region’s kings, and O’Krepkie pointed to strong employment within these sectors as one of the region’s greatest achievements.
“IT software development is also strong here, particularly among early-stage companies,” said O’Krepkie.
He acknowledged that old non-skilled manufacturing has largely vanished, but modern technological manufacturing has achieved many success stories throughout the region. These companies prosper by being competitive and efficient and looking forward instead of trying to recreate a lost past.
“Modern manufacturing must be knowledge and technology based, plus be constantly evolving,” said O’Krepkie. “In some ways the regional workforce here does show scarcity with the type of trained workers now needed, and this also includes the areas of tech support, marketing and sales.”
Two other areas of success highlighted by O’Krepkie have become possible because of NEPA’s location and the development of associated technology to capitalize on these realities. This is obvious with the logistics industry, because 96 million customers reside only one day’s truck travel away from NEPA, and within the Marcellus shale which flanks the region’s western border.
“The location advantage NEPA has with logistics has created a situation where we will run out of land for these big warehousing centers before we run out of companies,” said O’Krepkie. “Meanwhile, with gas recovery billions of dollars are being invested, and the construction of the needed pipeline infrastructure is creating a nice ripple effect.”
NEPA’s economic sectors, when examined from the standpoint of employment, demonstrate clear trends that illustrate moderate success with great diversity. According to data issued by Teri Ooms, executive director of The Institute for Public Policy & Economic Development, regional growth sectors now include plastics manufacturing, family services, warehousing and distribution, wholesalers, out-patient care centers, and fabricated metals.
Sectors where employment decreases are occurring include electric power, utility infrastructure, motor vehicle parts manufacturing, retail, and employment services. Overall, during 2017, this amounted to a net of 1,000 new regional jobs being created.
Baby boomers are also involved in a mass retirement exit from the workforce, in some cases creating job vacancies that are hard to fill because of skills shortages.
“With technical positions the good news is that apprenticeships and career tech school enrollments are both increasing, but our workforce needs in the region are very real and increasing,” said Ooms.
She added that the health care and social services sectors are rapidly evolving, with workforce quality now an issue. In particular, the behavioral health sector may find itself caught in the crosshairs of a mounting caregiver shortage.
“Behavioral health can affect every facet in a person’s life, and we need to understand that as we attempt to train enough people to work within this area,” said Ooms.
A relatively rosy financial sector analysis was issued by Lou Ingargiola, president of the Ingargiola Wealth Management Group. He expects 2018 to feature a continuation of 2017’s good economic news continues, with healthy hiring, effective consumer and businesses confidence, some labor shortages, and the Federal Reserve (Fed) likely to continue raising interest rates which would act as an economic headwind.
Consumer spending could slow in 2018, inhibiting retail growth and some hiring, but many companies have invested to make existing employees more productive. With a cheaper American dollar exports have exceeded imports in some sectors, but as the dollar gets more expensive, the balance is likely to shift back to negative, dragging on growth.
“Inflation also can be expected to rise slowly, putting the Fed in a difficult position,” said Ingargiola. “Therefore, with all factors considered, the 2018 economy should grow between 1.5 percent and 2 percent, but that may consist of faster growth in the first half and slower growth in the second. Corporate profits should also grow at healthy rates, with inflation around two percent for the year and the ten-year U.S. Treasury note yielding around 2.75 percent by year-end.”
The regional powerhouse sector of higher education offers a wide number of different instructional educational opportunities, according to Julie Schumacher Cohen, director of community and government relations with the University of Scranton.
“A wonderful educational ecosystem now exists here, with different opportunities for a wide variety of students,” said Cohen. “It’s very simple why education is booming. The value of education as a lifetime investment is proven and very reliable.”
Her school’s current enrollment of 5,000-plus students is being served by 1,102 faculty and staff members. This is creating a huge flow of cash, with systemic downstream effects as the money circulates throughout the region.
According the most recent study of the school’s financial effects, an annual economic impact exceeding $310 million is being created by students. Downtown dining is popular as at least $1.2 million per month is spent by students off campus, with annual visitor spending calculated to be $2 million, university payments for taxes and permits to be $551,000, and an annual contribution made to the City of Scranton of $200,000.
The school’s growth programs with enrollments also reflect the realities of the modern economy, as well as job opportunities after graduation. Programs leading the list of student enrollments include nursing, occupational and physical therapy, and exercise science. Biology, accounting, business administration, and finance are also popular.
“Despite a lot of national criticism about higher education and its costs, the fact remains that college grads earn 67 percent more over their lifetime versus high school graduates,” said Cohen. “This is a reasonable rate of return on investment.”
Within the regional medical arena, a pattern of steady growth and investment was described by Margo Opsasnick, CEO of Delta Medix. Her organization has expanded to now include 21 physicians, 60 caregivers, and 40 administrative support people, and generates $25 million in annual revenues while caring for 45,000 patients.
According to Opsasnick, one fundamental reason for the power of NEPA medicine is the relative age of the population. At Delta, the elderly utilizing Medicare comprise at least 50 percent of the patient base, with behavioral issues, smoking-related illness, and conditions related to obesity widespread.
“People have excuses to avoid medical screenings that detect illness in its early stages, and it seems to be the nature of the NEPA population to do this and then even avoid treatment,” said Opsasnick.
She also explained that NEPA’s medical sector is extremely busy because of a lack of preventative care by many patients.
“A common example of this is hypertension,” said Opsasnick. “Patients avoid detection and treatment, and the condition slowly destroys their bodies.”
She added that providers throughout NEPA will eventually become the recipients of new physicians courtesy of the Geisinger Commonwealth School of Medicine. This will help medical practices cope with an onslaught of new patients as NEPA’s population continues to age.
Opsasnick is not overly concerned with conservative attempts in Congress to shrink the size of Medicare and Medicaid. Within NEPA Medicaid only serves approximately 10 percent of the Delta medical patients, and private insurance through employment remains very strong.
“What I do worry about is staying on the cutting edge with new technologies that we must pay for,” said Opsasnick. “New technology acquisition must be part of a continuing strategy.”
Logistics and location are vital partners, making NEPA increasingly a supply chain powerhouse on the east coast, according to Alex Stark, senior director of marketing with Kane Is Able. The company now operates 150 truck power units, 600 trailers, and 25 national warehouses, including eight storage facilities within NEPA.
During 2017, Kane moved 2.1 billion pounds of material and logged 24 million miles traveled. This became possible through a business plan that capitalized on the fact that location is a key is to get merchandise quickly out of a warehouse to a customer, with facility effectiveness, tax structures, and the work ethic of populace all added in.
“Safety and creating a positive customer experience are the keys to supply chain success,” said Stark. According to OSHA’s 2017 safety metrics, we averaged only a 1.6 percent incident rate, while the national average was 4.6 percent.”
Other keys to logistics, according to Stark, include maximum fuel efficiency by the trucks. When tied to new gains in IT and high mechanical truck reliability, this allows carrier profitability to be maximized despite volatile fuel process and the complexity of modern vehicles.
“Truck drivers as a pool are also a mature group, creating shortages of younger people the business,” said Stark. “We need new blood entering the driving profession if we are to meet our workforce needs.”
Supply chain companies must also invest in new equipment, such as vehicles fueled by compressed natural gas and ever-improving IT systems. This all represents large sums of money, but it is vital.
NEPA’s entertainment sector is strong, with gaming now a consistent revenue-generating industry. Erica Tessier, vice president of marketing with the expansive Mohegan Sun Pocono complex, explained that her facility now employs approximately 1,500 people and achieves success with a defined marketing plan that sells an escape for a day.
“We create the memories about the thrill of winning, camaraderie with friends, and the reality of enjoying a special occasion,” said Tessier.
She explained that creation of the Pocono facility was the first step in the Mohegans thrusting a commercial foot outside of their native Connecticut. The expansion plan has worked, and the tribe now also operates within Washington State via a partnership with the Cowlitz tribe.
Central to the Mohegan success is a strategy that emphasized long-term planning.
“You can’t just look for just immediate gratification,” said Tessier. “Once you keep your eyes ahead you can better work through challenges
The Mohegan management staff has also created a business culture that, above all, welcomes guests and helps them to feel comfortable. This is a key to generating repeat customers as consumer confidence rises and fall, and weather and access problems potentially curtail revenues on particular days.
She emphasized that the facility’s workforce must perform every day if positive customer service is to be consistently delivered. Attitudes, work ethic and personality are all considered before hiring, and the applicant must firmly understand that the guest experience is multi-layered.
“We are acutely aware we must compete with other forms of entertainment, such as regional hockey, shows and dining,” said Tessier. “Competition is guaranteed, and actually it’s a very healthy thing.”