by Joe Sylvester
The outlook for the Northeastern Pennsylvania economy is pretty solid for 2019, though it is lagging behind the national economy, regional economic experts said.
A University of Scranton economics professor, however, said there are worrisome signs of possible trouble ahead due to increasing deficits, tariffs and health care uncertainties.
“I think the underlying fundamentals of the U.S. economy are pretty solid,” said Gus Faucher, senior vice president and chief economist of The PNC Financial Services Group.
He said there is good job growth, wage growth, which is designed to keep current workers happy and attract new workers, and growth in consumer spending. Energy prices, specifically gas prices, are coming down.
Faucher said the fiscal stimulus tax policy is helping corporations invest more, though incentives for business included in the package will lead to mild business growth in the short term but don’t do much in the long term.
Satyajit Ghosh, a professor of economics at The University of Scranton, said, though, there is uncertainty in the new tax policy.
“When we fill out our taxes, we will see a lot of our deductions are gone — mortgage deductions, state income tax deductions,” Ghosh said. “Middle class folks will figure out, ‘did it really help us?’”
He said that just before the midterm elections, President Donald Trump said he planned a 10 percent tax cut for the middle class.
“The White House essentially backed away from it,” Ghosh said. “What are our tax policies? We don’t know.”
He said the tax policy that was passed went more toward corporations and the wealthy.
“Our annual deficit exploded, our debt is increasing at a very, very fast rate,” Ghosh said.
Faucher said the Scranton/Wilkes-Barre area typically lags behind the national economy, so it will see growth, just not as soon as most of the rest of the country.
Northeastern Pennsylvania’s unemployment rate was at 4.8 percent in October, while the national unemployment rate was 3.7 percent that same month.
“That’s a good number, particularly for Northeastern Pennsylvania,” Faucher said. “It’s roughly on par with where it was in the previous expansion a decade or so ago.”
David Taylor, president and chief executive officer of the Pennsylvania Manufacturers’ Association, said he expects continued growth, but the manufacturing industry faces big challenges.
“There are more jobs available than there are people looking for work,” Taylor said. “My people can’t find the qualified workers. If you can’t find the staff, you can’t have that shift or take on that new contract that might be available to you because you can’t get the work done on time.”
Ghosh agreed Northeastern Pennsylvania’s economy lags behind the national economy.
He said the impact of the 2008 recession lasted almost to 2011 nationally, but locally, it lasted a little longer.
Ghosh said the economy may weaken in 2019. He said the country is overdue for a recession.
“There are a lot of things that are going on that are problematic for the economy,” he added.
Unemployment is low and wages are going up, but the stock market is not doing very well.
“All of the gains made this year have been lost,” he said.
Ghosh said the stock market may go down quite a bit, even when the economy is doing well. When the Federal Reserve raises interest rates, the market tends to “go south,” but the Fed is doing what it is supposed to be doing by bumping up interest rates to fight off inflation.
“I think we will see higher interest rates in 2019,” Faucher said.
He said wage and inflation pressures will lead to those higher interest rates that will result in some slowing in housing and auto sales.
Ghosh said there is too much uncertainty.
“We are not sure of what is our trade policy,” he said. “One day Trump is imposing tariffs on China and a lot of other countries, the next day the White House says it is not imposing tariffs. The stock market does not like a trade war. The companies don’t know which way to go.”
He added, “My guess is I would not be surprised if the economy starts to slow down because of trade issues and other uncertainties.
Faucher said higher prices on such products as steel and aluminum do increase uncertainty, but he didn’t think tariffs currently were not having much of an impact.
“If we do get involved in a full-fledged trade war, that could be a more significant negative for the global economy and reflect on the U.S. economy,” he said. “I’m not expecting that to happen.”
Job growth to slow
Faucher expects job growth to slow nationally and in Northeastern Pennsylvania because of the difficulty of finding workers.
Taylor said low work force participation leaves a lot of people on the sidelines.
“This gets to the opioid crisis, the failure of the educational system,” Taylor said. “We also have an opportunity with corrections reform. Maybe a lot of people on the sidelines are ex-cons or had a tangle with the criminal justice system. My hope is this can be a bipartisan area of policy, particularly in corrections.”
He sees more companies using robotics, but he said somebody has to build and service the robots.
Ghosh said one of the biggest issues facing the economy is health care. There is uncertainty about that, as well, following the ruling against the Affordable Care Act, or ACA, by the federal judge in Texas. Ghosh said if the ruling is upheld, those with pre-existing conditions may not be protected anymore, and families with children up to 26 years of age may have to spend $2,000 more a year because those children cannot be on the family plan.
“The president and the Republicans said before the election they would protect pre-existing conditions,” Ghosh said. “Now the president says (the Texas judge’s ruling) was a good decision.
Faucher said, though, because that judge’s ruling hasn’t taken effect, he doesn’t expect to see big changes.
“Businesses have adjusted, health care has adjusted,” he said, adding there is slower health care inflation.
Taylor said health care will keep going up. He chided Gov. Tom Wolf’s administration for not allowing development of Association Health Plans, in which small businesses form groups to buy insurance together.
But Pennsylvania’s Acting Insurance Commissioner Jessica Altman submitted comments to the federal government earlier this year on behalf of the commonwealth, highlighting “concerns about increased potential for consumer harm both immediately, and in the near future, as the ripple effect of the proposed changes begin to affect market stability, insurers, and the provider community.”
Altman, in her comments to the U.S. Department of Labor, expressed concerns that the new rule could impact consumer access to quality, affordable coverage, the state’s regulatory authority and market stability, according to her agency.