The national economic forecast will continue the positive trend businesses have been seeing over the past few years, but with signs of volatility emerging. These signs include rising inflation, interest rate hikes, the possibility of a trade war with China and a potential recession in about 20 months.
That’s according to Keith Aleardi, chief investment officer with Lancaster-based Fulton Financial Advisors, who shared the details of his economic forecast at Lehigh Valley Business’ Real Estate & Development Symposium this morning. The fifth annual event, which also included panel discussions, attracted 500 professionals to DeSales University of Upper Saucon Township.
Interest rate hikes and a trade war are just two factors that throw uncertainty into the economy.
Aleardi estimated there could be two more interest rates hikes this year.
“I think if we got into a trade war, that can be inflationary,” he said. “We are starting to see commodity price increases.”
Aleardi, whose bank operates as Lafayette Ambassador Bank in the Greater Lehigh Valley, said that by studying the economy through the lens of the stock market, one could see changes in short periods in the existing business climate. Such an approach could be helpful for looking at 2018 as well as looking back at 2017.
“I think we are in a transition period,” Aleardi said. “It was probably one of the best growth years we had. We’re seeing really good numbers out of the job market … Inflation was low.”
However, when the calendar changed to 2018, the economy saw renewed volatility as inflation helped drive interest rates.
“For the first time, we saw a little bit of inflation picking up,” Aleardi said, referring to the first quarter. “The labor market is very tight; there’s no room for it to get any tighter. We started to see wages go up in February. That becomes inflationary.”
Top-line earnings have been very strong, and businesses have been making a good amount of money the past few years, he added.
The U.S. Treasury yield curve is something worth paying attention to, he noted. If the curve flattens out, it’s an indication of a recession, he said.
However, the U.S. economy is not there yet, he added. He estimated it could be mid-2020 when the next recession hits, though it would be slight and not extensive.
Going forward, the economy looks good, he said.
“I believe 2018 is the best productive year we’ve had since 2009,” Aleardi said. “I think we are in a healthy economy.”
Low unemployment leads to greater consumer spending and business sentiment. This is an important factor since the U.S. has had lackluster capital spending since the Great Recession.
Now, with more spending on real estate projects, that, too, is improving.
The residential market should continue to be strong, possibly for another five years, particularly with more people, mainly millennials, entering the housing market. Millennials are also starting to show more interest in buying a house rather than renting.
“We are starting to see that transition happening,” Aleardi said. “The real challenge is we have a supply issue, making the housing market very tight.”
Home affordability has never been more attractive, though that is starting to go down.
Nonresidential construction is growing and manufacturing remains strong, he added.
Office construction also continues to grow and comprises about 9.9 percent of the overall construction market. However, these offices look different from the traditional office environment.
The event included two panel discussions. The first, “Development in the Lehigh Valley,” focused on development trends in suburban and office real estate markets, moderated by Joseph Fitzpatrick, shareholder and founder of Fitzpatrick Lentz & Bubba. The speakers were Becky Bradley, executive director of the Lehigh Valley Planning Commission; Michael Alderman, vice president, market officer for Pennsylvania for Liberty Property Trust; and J.B. Reilly, president of City Center Investment Corp.
A second panel discussion explored “What’s Hot and What’s Not in Commercial, Industrial, Office and Residential Real Estate Markets.” The speakers were Peter Polt, executive vice president of J.G. Petrucci Co. Inc., and Doug Frederick, broker/owner of Howard Hanna Frederick Group.
The event also included networking breaks and an exhibit area for vendors.