December 18, 2015
November Commentary: 2016 Regional Economic Outlook
The region's economy should build on the solid 2015 growth and accelerate over the next year.
In a Nutshell: "The region's economy should build on the solid 2015 growth and accelerate over the next year."
The Beneficial Bank's regional economy grew moderately in 2015. While the expansion was not nearly as strong as the nation as a whole, it was one of the best we have seen in a decade. With the U.S. economy forecast to accelerate, expectations are that 2016 could be a break out year for the region.
2015 in Review:
Current Economic Conditions:
The Beneficial Bank's regional economy is doing fine. Job growth during 2015 was solid and the unemployment rate is approaching the national average in many parts of the area. The pick up in activity is spread across most sectors, especially housing.
Payrolls: Job gains were up and down during the year but they are running at a rate similar to the last expansion's peak. Strength was seen in the Camden metro portion (Camden, Burlington and Gloucester Counties), the Montgomery-Bucks-Chester area and in Wilmington. Indeed, employment growth almost matched the nation in the fall. The City of Philadelphia, though, is lagging. That is surprising given that many neighborhoods are revitalizing as millennials and baby-boomers pour into the City. Don't be surprised if the City shows significant gains next year.
Unemployment: Unemployment rates have come down sharply across the entire region. In Pennsylvania, the levels are at or below 5%, which is the U.S. rate. The Camden metro segment has modestly higher rates. Only in Philadelphia is the rate above 6%. Labor shortages are starting to appear in portions of the region. For example, the unemployment rate in the Montgomery-Bucks-Chester portion is below 4%, a warning that firms will have problems finding available workers.
Housing Market: As reported in the Beneficial Bank October real estate review, according to a Lindy Institute report, housing sales in the City of Philadelphia hit their highest level since 2007 in the third quarter, home prices soared by over 7% and housing permit requests and sales rose strongly. The accelerating activity points to an even better year in 2016.
Industry Details: The region's manufacturers went on a roller coaster ride this year. Activity soared at the end of 2014 but faltered early in 2015 as the winter took its toll. By summer, conditions were actually declining. But recently, activity has improved and the major problems appear to be behind us. The non-manufacturing portion of the economy also hit a slow spot in the winter but has rebounded sharply and is humming along once again. Construction is benefiting from the recoveries in the residential and commercial real estate sectors. Solid job gains continue to be posted in the region's key health care, education and hospitality sectors. Government cut backs, however, are restraining job growth.
Business Confidence: Optimism about the future followed the ups and downs in each sector. Manufacturers became quite worried in the first half of the year but the mood has improved recently. Business leaders in the non-manufacturing portion, however, have been very upbeat about the future all year long.
2016 Regional Economic Forecast: Expectations were that the region's economy would pick up steam in 2015. After a sluggish start that was driven by the harsh winter, conditions did turn. The economy regained its footing by the fall and is carrying solid momentum into 2016. All signs point to even better growth in the year ahead.
Key to any gains in an economy is an improving labor market and we are already seeing that. Job growth is moderate and could start approaching national rates as we move through 2016. The low unemployment rates should trigger higher wage gains. That is a two-edged sword. While families will have more money to spend and consumption should accelerate, firms will face growing pressures on their costs. On net, though, the increasing spending power of households should be a positive for the region.
But what creates the most optimism is the heightened attraction of the City of Philadelphia to millennials, baby-boomers and all the businesses that service those groups. That should lead to the housing market improving even further, construction activity accelerating and strong job growth. This is a long-term trend that provides hope that the region could match or even exceed national growth rates for years to come.
In summary, assuming the nation grows as solidly as expected, 2016 could be a break out year for the region's economy.