As recession looms over 2023 local leaders see hope

As the nation rings in the New Year, it has the “R” word on its mind. 

Many economists are predicting a recession in 2023, but opinions vary on how bad it could be and just what would be impacted. 

Don Cunningham, president and CEO of the Lehigh Valley Economic Development Corp., said from what he’s being told all of the signs are there pointing towards recessionary conditions, but if a recession does come, he doesn’t think it will hit the Lehigh Valley as hard as some other regions. 

He noted that there is a strong diversity of industries in the Lehigh Valley and there remains a strong interest in locating here. 

A recent report by Century 21 Commercial showed that the Lehigh Valley industrial market had the tenth lowest vacancy rate in the nation, and the second in the Northeast region, behind only the New York Metro. 

“Looking ahead I think most people are forecasting a little bit of a slowdown in the industrial market,” Cunningham said. “But we’re not there yet.” 

He said the popularity of the region for warehousing and light industrial companies may be one thing that slows down economic development in 2023. 

“A lack of locations and higher interest rates could impact the economy,” he said. 

The commercial office space may continue to remain slow in 2023.  Many companies have adopted work from home or hybrid office policies that mean most aren’t opening new office space right now. 

Richard Hobbs, president and CEO of the Manufacturers Resource Center, said for the most part many of the issues that manufacturers faced in 2022 will carry over into this year. 

He said the looming recession and higher interest rates will be factors that will affect manufacturers in the Lehigh Valley. 

“There’s still the same fundamental issues, but with twists to them,” he said. 

Areas of improvement for 2023 should be in supply chain management, he said issues at ports and with transportation have eased and more materials and goods are getting to their destinations. 

Hiring shouldn’t be as big of a challenge, either. 

“At the beginning of [2022] there was a craze in trying to hire,” he said. That drove up wages and led employers to offer a variety of extra bonuses and benefits to attract workers from the limited talent pool. 

“There’s still a hiring press, but not as crazy as it was before,” he said. 

He expects wages to normalize and for employers to be more focused on retention than hiring. 

“How do we retain these people we spent all that money to bring on,” he said. 

Hobbs said he thinks the biggest impact on manufacturing and the regional economy in 2023 will be the reduction in the Corporate Net Income Tax, which begins this year. 

Once among the highest in the nation, the tax will be reduced starting this year from 9.9% to 8.99% as of Jan. 1 of this year and ultimately down to 4.9% by 2031. 

“I think that’s going to be a big attractor to bring manufacturers into the state,” Hobbs said. “It’s the right way to go and it’s the right thing to do. 

During a recent press conference on the tax reduction, Christopher Kuhn, CFO of Olympus of the Americas in Center Valley, said the tax reduction will benefit local operations at his company.  

“We will be able to more aggressively grow our business with both organic and inorganic investments in Pennsylvania,” Kuhn said. 

On the flip side of the tax reduction, interest rate increases are expected to continue. 

The Federal Reserve has indicated that it’s unlikely 2023 will see any interest rate cuts and kept the possibility open that more rate hikes could be coming this year. 

John Hayes, CEO of New Tripoli Bank and member of the PA Bankers Association, said that the higher rates have already put some commercial projects on hold and he expects slowed activity through 2023. 

But he said in some ways that’s a good thing. He said development in the region couldn’t “continue to perform at that level over a long period of time,” and that the slowdown is more of a normalization of development. 

Still, with major movement in food, beverage and pet food manufacturing and many European companies looking to move into the Lehigh Valley, Cunningham said he said he expects, overall, the Lehigh Valley in 2023 will be “full speed ahead toward economic growth.”