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New tax law spurs rise in consumer, business spending

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Consumer spending should be on the rise, thanks to the new law on taxes.

It’s a bright spot in the economy fueled by the increase in take-home pay for consumers following the federal Tax Cuts and Jobs Act that was passed late last year.

Consumers are expected to spend more of those dollars over the summer, said Kamran Afshar, economist for the Greater Lehigh Valley Chamber of Commerce and director of the Kamran Afshar Data Analytics Center at DeSales University in Upper Saucon Township. He shared this and other insights as part of his report on the results of his April Lehigh Valley Business Sentiment Index.

The index discloses quarterly results from chamber members on their hiring and purchasing plans, as well as their economic outlook, coupled with updated data on the labor market, unemployment claims and other factors.

Another positive factor is that wages could be rising more than in the recent past.

“Wages are going up, and we are going to see a lot more of it going forward,” Afshar said.

Participants in the survey include a range of companies across different industries, including real estate, education, health care, retail, construction, finance and manufacturing.

MORE BUYING BY BUSINESSES

Purchasing plans also are up for April, and Afshar noted that businesses are starting to feel the difference in the tax rate for the first time, thanks to the Tax Cuts and Jobs Act of 2017. The five-month average is about 65 percent for those companies that reported their purchasing plans as increasing for the next six months.

However, Afshar said he was very surprised that purchasing plans were not as high as they were just after the presidential election in November 2016.

Purchasing plans over the next six months are even less enthusiastic, he noted.

“The amount of expansion is coming down constantly after the election,” Afshar said, who also noted that “it is not as bad as it sounds.”

If businesses started expanding too rapidly, that could have negative outcomes for the economy, as opposed to a slower expansion.

TRANSIT AND WAREHOUSING

In the short term, the fastest-growing sector of the job market in the region is transportation and warehousing, but Afshar said this would change with the increased automation of long-haul trucks expected over the next five years.

In addition, warehousing will increase with the automation of its operations and buildings, reducing jobs filled by humans.

Jobs for truck drivers will be a lot fewer, he added, describing the reduction as significant.

The long-haul truck driver jobs pay very well, but will be among the first to see full automation, he said.

SCIENCE, MORE BOUTIQUE STORES

Along with the growth of self-driving vehicles, one long-term job growth industry is specialization in science, which Afshar said is required for the people who design and engineer the software needed to power these vehicles.

In addition, big box stores will continue their rapid decline in retail, with many jobs along with it.

The nation’s retail sector is moving to smaller stores, and people will start seeing more boutique stores that specialize in one thing, he said.

HIGHER DEFICITS POSSIBLE

While the index represents a rosy picture of the economy from the perspective of local businesses, several factors could sink the positive outlook, Afshar said.

Furthermore, the new tax breaks will cause higher deficits, at the very least, early on, he said.

Since the labor market is at full employment and the deficit is rising rapidly, inflation and higher interest rates are not far behind. Interest rates could increase three times this year, he said.

PRESSURE FROM OIL PRICES

In addition, oil prices rose to $80 per barrel, and the cost of gasoline is jumping at the pump, while a potential trade war with China is pushing up prices for construction materials.

“These types of things are devastating to economies,” Afshar said.

For example, tariffs are not in place yet, but companies already are seeing rapid increases in the price of steel, driven largely by fear of a trade war.

TOO OPTIMISTIC?

The tight labor market in the region is not a common event, Afshar said.

“The labor pool is thinning out in terms of what’s needed,” he said.

He described the hiring plans of businesses over the next six months to be overly optimistic. The number of local businesses reported a huge demand for labor, going beyond the five-month average figure of 68 percent of businesses that reported plans to hire more employees.

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Write to the Editorial Department at editorial@lvb.com

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