Villanova School of Business Economists Offer 2013 Fiscal Projections

Regional/National Unemployment, Municipal Budgets, Consumer Spending Covered

VILLANOVA, Pa. – The economy is still a top concern in 2013. Villanova School of Business Economists Peter Zaleski and David Fiorenza have made several projections about what to look for in the coming year on the path to fiscal recovery.

David Fiorenza has extensive expertise in municipal finance and has previously worked in municipal government as the CFO of the Township of Radnor, Pa., and Borough Manager of Kennett Square in Chester County, Pa. He continues to consult with municipalities in Pennsylvania, and is a current member of the PA & National Government Finance Officers Association (GFOA). Fiorenza has been involved with bond issues and the refunding of bonds with most of the municipalities for which he has worked or consulted.

Philadelphia and Pennsylvania economic conditions for 2013:

  • Our area will move with caution for expansion of businesses. Energy and health care will continue to have steady growth. This area continues to be resilient as there is such a cluster of industries in Philadelphia and the surrounding suburbs: universities, health care, pharmaceutical, etc.
  • The food industry and restaurants will continue to look for savings as they work on low profit margins. That could mean smaller portions, smaller size of containers, etc.

Regional Economy:

  • The regional economy continues to heal slowly but faster than other areas of the country. The region has many facets: sea and river ports, airports, major highways, centrally located to the three major cities of New York, Baltimore & Washington.
  • The Philadelphia area does not fall into recessions as quick as other parts of the country. The New Jersey shore is the one “Achilles” for our area due to natural disasters.

Gaming:

  • Gaming has been positive for the State of Pennsylvania. The state continues to see slight increases in gaming each month.
  •  Pennsylvania has hurt Atlantic City gambling. Also, Hurricane Sandy has hurt New Jersey revenues. Many conventions, trade shows, conferences, concerts and other events were postponed, canceled or rescheduled in Atlantic City. This has a multiplier effect on the city, county and state revenues.

Municipalities and County Government:

  • Municipal, county and city governments will continue to have very austere budgets as they continue to look for ways to cover their pension plans, medical and health benefits and any unfunded liabilities. The unfunded liabilities are the biggest risks and expense cliff for municipalities. Take away unfunded liabilities and municipalities will become more solvent.
  • Local boroughs in the tri state area will continue to struggle and look for other sources to revitalize and gentrify their small town urban areas.
  • As unemployment rates start to decline and workers are added to payrolls, areas with wage or earned income tax will see a steadier flow of tax revenues.
  • Building permits for new construction or remodeling will be an indicator of whether municipalities will see other revenues in 2013.

Post Sandy:

  • From an Economics viewpoint, taxpayers in other states who may never visit New Jersey should not have to pay for shore owners’ rebuilding expenses.
  • From a moral and social view point, our country has had various agencies with a budget to correct the problems that have occurred from natural disasters. FEMA is one example. In addition, our country has other programs to assist various industries, such as subsidies and grants.
  • States also have their own Emergency Management Agencies, but they operate with smaller budgets.

Peter Zaleski is an economics professor at the Villanova School of Business. He predicts that, in many respects, 2013 will carry the chains that were forged in 2012.

Inflation:

  • While headline inflation numbers appear tame, those numbers ignore fuel and food prices. Actual inflation, as felt by the real consumer, will continue to erode real purchasing power.

Unemployment:

  • For the past four years, the business sector has been reluctant to make real investment and hire permanent full-time workers. If increasing government involvement in the economy continues into 2013, business growth will continue to stagnate and labor force participation will continue to fall.

The Federal Debt and Deficit:

  • Under current policies, the Fiscal Cliff can only be postponed at best. So, federal borrowing will continue to be an issue into the New Year.

Pent-up Consumer Demand:

  • What's under the radar screen? The answer is pent-up consumer demand. Over the past four years, uncertainty has made households reluctant to make the big purchases. But consumers are an impatient lot, and this behavior cannot last. People have been holding cars longer, postponed moving and postponed forming new households.

Repeat of Household Debt/Stock Market Sell-Off:

  • Even if the macroeconomy does not improve, people will eventually start spending more on the big ticket items. Real estate and autos are already showing signs of a rebound. The drawback is that government policy has not encouraged people to save during the past four years - so one of two things will happen. We might be in for another round of higher household debt, and/or we might see a sell-off in the inflated stock market.

About Villanova University: Since 1842, Villanova University’s Augustinian Catholic intellectual tradition has been the cornerstone of an academic community in which students learn to think critically, act compassionately and succeed while serving others. There are more than 10,000 undergraduate, graduate and law students in the University's five colleges – the College of Liberal Arts and Sciences, the Villanova School of Business, the College of Engineering, the College of Nursing and the Villanova University School of Law. As students grow intellectually, Villanova prepares them to become ethical leaders who create positive change everywhere life takes them.