Survey of local businesses shows sizable drop in economic outlook

Despite low unemployment levels, local businesses showed a considerable drop in enthusiasm about the economy in a recent survey.

That’s the conclusion drawn by local economist Kamran Afshar, who shared the results of a survey that polled more than 200 Lehigh Valley businesses.
The April survey showed a sizeable 6.7 percent drop in business sentiment about the local economy since October, Afshar said, noting it was the second drop in a row for the index.

In October, the index rose to 69.4, but in January, it dropped a few points to 66.9. April showed a drop to 62.5.

If the number drops to 50 or below, that signals the economy could be in a recession.

He released the data earlier this month during an event at DeSales University Center in Upper Saucon Township.

As part of the Lehigh Valley Business Sentiment Index, Afshar gathers data four times per year. He has been conducting the quarterly surveys locally since 1998. 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.

Initially, Afshar thought the drop came from the aftereffect of the business tax breaks under the 2017 Tax Cuts and Jobs Act, which boosted last year’s economic outlook. However, with a nearly 7 percent drop in April in the business sentiment index, Afshar said the drop potentially goes beyond the tax breaks.

Afshar said it’s possibly related to the uncertainty surrounding U.S. trade disputes, which are starting to become more serious.

“The impression to people is, they can’t predict where they are going,” Afshar said. “That’s the biggest problem for businesses: Being able to have an educated guess about where you are going to be a year, two years from now.”

However, Afshar said the local economy appears good overall, despite the drop in business sentiment. If there were another drop in July, that could be a concern, he added.

The survey includes data on business projections, including purchases, hiring, and revenues for the next six months, and compares them with data from the prior six months. Participating companies include those in health care, education, retail, manufacturing and finance.

Health care companies hired the most over the last six months, followed by construction companies in the valley, Afshar said. However, retail and other services reported net layoffs.

Still, the rate of layoffs among businesses in the survey is well below what it was even during the boom years of 2004-06, Afshar said.

Initial unemployment claims also dropped, which is associated with a tight labor market. In general, the valley’s pool of labor is thinning in total numbers and expertise in particular, he added.

“The only thing which has not totally materialized is a strong increase in local wages, something that is starting to become measurable,” Afshar said.

As for revenue, businesses surveyed have been experiencing slight drops since last summer. However, their expectations of future revenues are higher than they were last summer, he said.

While Afshar said he does not see a recession ahead, he does see slower economic growth over the next year.

Tony Iannelli, president and CEO of the Greater Lehigh Valley Chamber of Commerce, said local businesses appear to be confident about the economy.

But there are sources of uncertainty, such as the rhetoric heating up over the 2020 presidential election is.

“Some of the rhetoric…doubling the minimum wage, potential costs that would increase taxes … it creates a little uncertainty which tends to make businesses a little uncertain,” Iannelli said. “In this ever-fluid world, there’s always something that could impact business confidence. In an election cycle, that goes up dramatically.