Facebook LinkedIn Twitter RSS

Expert: Area economy strong; wait-and-see on tax bill effect

By ,
PHOTO/BRIAN PEDERSEN
Economist Kamran Afshar delivers his state of the regional economy report at DeSales University. Also pictured are DeSales students who helped with gathering and analyzing the data in the report.
PHOTO/BRIAN PEDERSEN Economist Kamran Afshar delivers his state of the regional economy report at DeSales University. Also pictured are DeSales students who helped with gathering and analyzing the data in the report.

While local unemployment continues to drop and hiring continues to grow, the brief upsurge in the region’s business outlook that came about in the wake of the passage of the new tax law was a lot smaller than expected, according to local economist Kamran Afshar.

 

To be sure, many local businesses expressed happiness over the passing of the Tax Cuts and Jobs Act in December. But positive changes have not occurred quickly, and that contributes to a tepid overall view on the economy by local businesses, despite positive gains in hiring and unemployment.

For companies that are small businesses and not large global businesses, the cut in the corporate tax rate from 35 to 21 percent may not be so great, Afshar said.

An economist for the Greater Lehigh Valley Chamber of Commerce and director of the newly formed Kamran Afshar Data Analytics Center at DeSales University in Upper Saucon Township, Afshar released his economic forecast, including the Lehigh Valley Business Sentiment Index.

He reported the overall Lehigh Valley Business Sentiment Index dropped from 64.8 during 2017 to 63.5 in January. If the number drops to 50 or below, the economy would be in a recession.

“As it stands, the Lehigh Valley economy is doing well,” Afshar said. “There are a lot of changes in the Lehigh Valley employment sector.”

SURVEY OF BUSINESSES

The index analyzes economic data on businesses from Lehigh and Northampton counties who responded to quarterly surveys his center sent through email in January.

Based on the surveys, which take into account key economic and political events, the center gathers information on hiring, purchasing patterns and revenues the past six months, as well as projected expenditures, hiring plans and revenues in the next six months. The margin of error is 30 percent.

Afshar and his students, part of the center and who participated in compiling, analyzing the data, presented the information.

Having compiled the data for Lehigh and Northampton counties since the 1990s and through two recessions, Afshar said he has gotten a very good idea of how Lehigh Valley businesses are doing.

UNEMPLOYMENT IS LOW

“Initial unemployment claims are at a very low level,” Afshar said, citing data from the Pennsylvania Department of Labor & Industry. “The labor market is close to full employment level in the Lehigh Valley.”

Monthly initial unemployment claims are at about 3,670, according to state figures from November 2017, he said. As a comparison, at the height of the recession in 2008 and 2009, they topped 8,000.

The trend for hiring is up and moving consistently and expected to continue the next six months. However, the Valley’s population is aging faster than the national average, and the Valley’s available labor force is starting to shrink, a trend that businesses will have to face going forward if it continues, he added.

NEARLY FULL EMPLOYMENT

“We have started to see movement on wages since 2016,” Afshar said. “This is very close to full employment for the Lehigh Valley.”

Wages are slowly rising, he added.

Regarding hiring, businesses appear to be optimistic. The last six months, hiring is one area that has not shown a decline but rather is continuing to go at a steady pace, he added.

“However, the number of people they are hiring is showing a drop,” Afshar said, meaning that even though more businesses are hiring, they are hiring fewer people when they do.

PURCHASING PLANS

Just after the 2016 presidential election, purchasing plans for businesses in the Lehigh Valley picked up, but then dropped because people became pessimistic, Afshar said.

“But with the new tax bill, it picked up but we have not seen an impact yet.”

For the next six months, purchasing plans for local businesses are increasing at a slower and slower pace, he said.

“All of these indicators are showing election happiness; they expected things to change rapidly,” Afshar said. “It is an expectation that hasn’t been met.”

CAUTION

Businesses have become very cautious and decided to move more slowly in terms of purchasing plans for the next six months.

“It takes time for these things to happen,” Afshar said. “We are looking at businesses being cautious even after the passage of the tax bill.”

Compared to the previous six months, revenues showed a big spike in January for local businesses right after the tax bill passed, he said. Many businesses look at the potential for increased revenues.

HOPE WITH TAX LAW

In 2007, economic growth started to drop, then slowly began rising, went up early in 2016, then dropped and went back up again very slowly.

Businesses appeared positive after the election regarding the overall business sentiment index, he said.

“Our data clearly shows that,” Afshar said.

No one knows the impact of the tax bill, but many businesses expect it will be very beneficial for them, he said.

CHANGE IS ON THE WAY

Transportation and warehousing is the fastest growing sector, but in four to five years, that will change when automated trucks will be on the road, Afshar said.

Technology also will bring changes to many jobs in the employment sector, from accountants to advisers, he added.

Afshar said he would complete his next survey of local businesses in April. The center completes the surveys every quarter.

His team sends 7,000 emails to Lehigh and Northampton county businesses every quarter, receiving about 250 responses.

Also Popular on LVB

Write to the Editorial Department at editorial@lvb.com

Leave a Comment

test

Please note: All comments will be reviewed and may take up to 24 hours to appear on the site.

Post Comment
View Comment Policy

Comments

close