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Despite headwinds, optimism for economy

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A strong Pennsylvania economy has the potential to soar in 2019 if a number of macro issues on the federal level – such as trade – move forward, several observers noted.

They cautioned, however, that attempting to peer too far into the future isn’t easy, especially when solutions to macro issues hinge on the volatile political scene in the nation’s capital. But many measures of economic health – from job growth to unemployment to consumer spending – continue to show strength.

The recent stock market downturn doesn’t necessarily foretell a recession, with some observers noting in recent weeks that a correction is normal after nearly a decade of a bull market. And while declining oil prices hurt some investors, the lower gasoline prices fuel consumer confidence.

“I never have been much for a crystal ball,” said David N. Taylor of the Harrisburg-based Pennsylvania Manufacturers’ Association. “But I believe the fundamentals of the economy are strong.”

Some observers note that, in fact, a strong economy is creating problems that will hinder future growth unless solutions can be found. For example, an unemployment rate hovering around 4 percent will frustrate companies that want to expand.

“The number one issue for manufacturers moving into 2019 is still the shortage of skilled workers,” said Darlene J. Robbins, president of the Northeast Pennsylvania Manufacturers and Employers Association based in Pottsville.

The shortage is national in scope.

Lower real estate inventory expected for 2019

While macro economic issues are playing out on a world stage, the real estate industry is gauging its future on where you might expect it – the local market.

“It’s a tale of two markets,” said Edwin B. Tichenor Jr., president of the Greater Harrisburg Association of Realtors. “It’s favorable for sellers but frustrating to buyers.”

Tichenor, who is an agent with Turn Key Realty Group, said a lack of inventory continues to be a main trend that he expects will continue into 2019, although he added that it is “tough to forecast.”

Affordability is becoming more of a concern, he said, because the low inventory means that prices are rising at a time when interest rates also have been going up.

“That is not just locally but across the country,” he added.

Historically low interest rates are now starting to rise over 5 percent, which is still good but not the rock-bottom rates seen in recent years, said Ken Worley, who was the 2018 president of the Realtors Association of York and Adams Counties.

“An interest rate at 5.25 is still a great rate,” Worley said.

Low inventory will continue to affect the market, he said.

“I think it will be a seller’s market again into 2019,” said Worley, an agent with Berkshire Hathaway Homesale.

“We are in the midst of an absolute crisis in terms of the workforce,” Taylor said. “The crisis of the workforce is limiting the ability of the economy to grow. You can’t bring on a third shift. You can’t take on a new contract.”

The worker shortage hits all segments of the economy, including farming, which has had its share of other troubles in recent years, said Mark O'Neill, media and strategic communications director for the Pennsylvania Farm Bureau.

Farmers have long dealt with a worker shortage, primarily because it has been generations since U.S. citizens have found farm work attractive. Federal immigration reform could help, such as a sensible guest-worker program that would allow year-round visas for legal immigrants.

Dairy farmers, for example, require year-round workers, not seasonal workers, O’Neill pointed out. Other industries have argued for expansion of visa programs that attract highly skilled professional and medical workers, as well. But a cogent plan remains elusive in Washington, D.C., where the arguments and policies center more on illegal immigration than legal immigration, observers noted.

Taylor said creative solutions to the worker shortage have been floated, including prison reform that might provide non-violent offenders an opportunity to get a job right away after release. Policy makers also could help by pinpointing why many of the remaining 4 percent of the jobless haven’t gotten “off the sidelines” and taken open positions, Taylor said.

“We need to value all kinds of work,” he added.

Challenges in Washington

The biggest issue that has faced Pennsylvania farmers this year is something that most non-farmers find merely annoying – the weather.

“Overall, this year has probably been one of the most challenging for farmers,” O'Neill said, adding that record rainfalls made the spring, summer and fall planting seasons challenging. “It’s been a horrible year for weather.”

With that said, he added, farmers have been hoping for some more help from Washington, including a Farm Bill that was approved Dec. 12 with wide bipartisan support. In addition to the usual aid for crop insurance and other issues important to farmers, the bill included a provision that would allow farmers to plant industrial hemp, O’Neill said. Industrial hemp will no longer be on the federal controlled-substance list, while the legislation does nothing to legalize recreational marijuana.

“That creates a whole lot of more opportunity for farmers interested in growing the product,” he said. “That’s a big one for Pennsylvania farmers but in other states, too.”

Farmers, manufacturers and others also hope the new Congress will approve the Trump Administration’s trade deal with Mexico and Canada that will replace the North American Free Trade Agreement. The United States Mexico Canada Agreement, or USMCA, would replace NAFTA and further open some Canadian markets, including for dairy products, O’Neill said.

“It is an improvement on NAFTA, and we liked NAFTA,” O’Neill said, adding that farmers need access to as many markets as possible. “That is why trade agreements are so important.”

Taylor called the USMCA a “mixed bag” for manufacturers but noted that 1990s-era NAFTA needed to be updated to address issues created by the digital revolution.

“It was important to have a deal,” he said, adding that uncertainty over a trade deal has been removed. Assuming Congress approves the deal, USMCA should bolster business confidence.

Sanjay Paul, an associate professor of economics at Elizabethtown College, said the USMCA is a major development and will play a big part in economic expansion in the year ahead.

Paul, O’Neill and Taylor said a tougher task will be a trade deal with China. For now, China and the Trump Administration have called a truce of sorts in the trade war, with the hope that major developments on a new deal can be reached by March. If so, 2019 could be a banner year for businesses nationwide, if not worldwide, across most industries, Paul said, adding that he is uncertain a deal can be reached.

“There is a lot of gamesmanship going on,” Paul said.

O’Neill noted that a trade deal with China will alleviate pressure on U.S. farmers and reverse the severe adverse effects that the tariffs have had on some, particularly pork producers and soybean growers. Farmers tend to be optimistic but practical about the issues with China, he added.

“They like to say, ‘This is hurting us now, but this will be better for us in the future,’” he said.

Taylor isn’t nearly as optimistic, especially when it comes to China, which he called a dictatorship that has been manipulating markets, conducting corporate espionage and stealing intellectual property for decades. The Trump Administration is right to point out those issues, but he doesn’t think China’s leaders will change their ways.

“They are exceptionally hostile,” Taylor said. “Their word is no good.”

The United States needs to be careful, however, in how it goes about setting policies, such as when Canada was singled out in March for allegedly helping China circumvent new tariffs on steel.

“The Canadians are not part of the problem,” Taylor said. “Our Canadian neighbors have done nothing wrong.”

U.S. leaders need to make sure they don’t alienate allies or otherwise create unnecessary economic constraints that might curtail current momentum, he and others said.

The full effect of the federal tax reform plan hasn’t been realized, so the country could see more positive developments from it, Taylor noted, such as Apple’s Dec. 13 announcement that it will add thousands of positions at a new corporate campus in Austin, Texas, and elsewhere.

“That’s a big win,” he said. “That’s a big win for our country.”

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