While the Lehigh Valley economic outlook is positive and strong among local businesses, several national and global factors could push the region toward another economic recession.
Wednesday, Economist Kamran Afshar shared this view as part of his report on the July Lehigh Valley Business Sentiment Index, a survey of local businesses, at DeSales University Center in Upper Saucon Township. Afshar has been conducting the quarterly survey of Valley businesses since 1998.
“The economy is very close to what we call is a boom,” Afshar said. “We definitely have a tight labor market in the Valley. We are at a very, very interesting place.”
However, national events could influence the Lehigh Valley economy the next few months.
Afshar described it as “the top of the hill” and noted that most economists are forecasting a downturn.
“The fear is that we are going to go down the hill,” Afshar said, adding that this sounds like the most probable outcome. “We are at the edge of the hill.”
The Federal Reserve has always reacted to these market conditions by raising interest rates, and two hikes could occur this fall, he added.
Furthermore, international tariff skirmishes that contribute to rising prices for materials, along with higher inflation, could put the Valley at the start of another recession, according to Afshar.
“Where we are is very, very similar to where we were pre-Great Recession,” Afshar said of indications about a decade ago. “This is not the best sign we are looking for.”
Nationally, the housing market is seeing high prices and low inventory, a trend that also reveals itself in the Valley. That’s one of the major symptoms of a potential recession. Tariffs could exacerbate this with higher costs in building materials and supplies for housing construction.
OVERALL INDEX DIPS
Afshar also serves as an economist for the Greater Lehigh Valley Chamber of Commerce and director of the Kamran Afshar Data Analytics Center at DeSales. The quarterly results are determined by surveying chamber members.
In April, the business sentiment index in the Valley rose to its highest level since 2007.
For April, the overall index rose to 66 percent, compared to 63.5 percent in January. If this number drops to 50 or below, that signals the economy would be in a recession. For July, the index was at 64.2 percent, a slight drop from April’s high of 66 percent.
Overall, Afshar said, July’s business sentiment index was positive.
“It is still not as high as it was before,” he said. “It is trending up, and we expect it to continue to go up. We are very close to the top of the range.”
In his presentation, Afshar, along with Amber Achenbach and Yesha Shastri, two of his students from the Data Analytics Center, shared details on their analysis and review of the July survey.
The bulk of businesses surveyed are small companies. Forty-three percent had one to five employees, while 8 percent had more than 50 employees.
For the index on employers’ purchasing plans over the next six months, the data showed a drop from nearly 65 percent in April to nearly 63 percent in July. Last year, the data showed a huge increase in terms of expenditures over the next six months, but that has not occurred this year, Afshar said.
For the purchasing index over the last six months, companies reported a drop in July compared to April. In April, it hovered near 66 percent, but in July, sank to nearly 63 percent.
Revenues over the last six months were relatively flat. About 55 percent of the businesses surveyed expect revenues to increase again.
However, the hiring index over the next six months is at the highest level for this century, Afshar said, noting that it was only higher in the surveys for 1998 and 1999.
“We are now above where we were before the Great Recession started,” Afshar said. “Everybody is planning to hire more people. Plans for hiring are continuing to increase at a high level.”
Also, companies are laying off a lot fewer employees, he said.
“It’s called a tight labor market, and Lehigh Valley is there,” Afshar said.