The year is rapidly coming to a close, so it is time to peer into my somewhat-foggy crystal ball and make some predictions about the 2015 economy. The "good" is the likelihood that the national economy will grow strongly. However, New Jersey could be the "bad."
Thankfully, Pennsylvania and the Philadelphia region are not likely to be "ugly" - average is a better way of putting it.
The U.S. economy has shifted gears. Growth has been accelerating, with four of the last five quarters exceeding 3.5 percent. The last quarter of 2014 could make it five out of six. The expansion has become broad based, with consumers spending, businesses investing, exports expanding, and even the government chipping in.
As activity spurts, so has hiring. The economy may not yet be a "big, mean jobs machine," but it is getting there. The November payroll increase was the second largest in the last three years, and over the last three months, an average of nearly 280,000 new positions were added. That is very strong job growth.
Most promising was the sharp rise in hourly wages. One month hardly makes a trend, but with the unemployment rate edging toward full employment, this could be the sign that we have been waiting for: Solid employee compensation gains, the missing link in the recovery, might be in the works.
I expect national economic growth to be strong - in the 3.5 percent range - especially if wage gains accelerate sharply. Even if energy costs rise a little, they should remain relatively low, supporting better consumer spending. Businesses will likely invest heavily to meet the growing demand. And with coffers filling, government spending should increase as well.
But no good growth goes unpunished, and the Federal Reserve is likely to raise interest rates. The Fed wants to return to more normal rate levels. Yes, there are issues with the Japanese and European economies, but they will also benefit from lower energy prices.
The international risks are not likely to be enough to sway the monetary authorities from their appointed rounds of rate hikes. Regardless, rising interest rates would be a signal that conditions are improving greatly.
Does a good national economy mean a solid regional economy as well? Not necessarily. The "bad" is New Jersey. Its economy is one of the weakest in the nation. Few jobs are being created, and the unemployment rate is well above the U.S. level. With a massive budget deficit and large numbers of distressed homes restraining housing activity, New Jersey's economy should lag the nation again.
The Pennsylvania situation is less dire. The unemployment rate is relatively low, but job growth ranks among the 10 weakest states in this category.
Most troubling is Pennsylvania's huge budget deficit. There are no smoke and mirrors left to "balance" the budget, and the challenges facing Tom Wolf, the incoming governor, are daunting. That said, the state's strong energy, health care, and distribution sectors should help it to grow moderately.
And that brings us to the Philadelphia region. The economy has lagged, but the outlook is extremely positive. All it needs is the political community to stop mucking things up and start thinking long term.
The region's economy could become one of the strongest in the nation. It is well-positioned to harness the mega-trends that will continue to drive growth in the future. The extensive network of ports, airports, highways, and rail lines positions the region to benefit from the growing need to warehouse and transport goods for next-day delivery.
It could benefit from Pennsylvania's dominance as a natural gas producer by building out the distribution system. And with baby boomers' aging, the region's huge medical sector can only become a bigger economic force.
But the region cannot continue to miss opportunities to benefit from these developments. The privatization of the Philadelphia Gas Works could have formed the base for a robust energy sector, especially if the state helped develop the supporting infrastructure. The failure to site the next casino where it would add to the region's important hospitality sector is also a missed opportunity. These actions can only slow future growth.
When I look to 2015, I do so with great expectations. A stronger U.S. economy can only help accelerate local growth. And the advantages that exist in the region raise hopes that the economy can start matching national activity, not lag behind it.
That might not all happen in 2015, but it is coming. Very simply, you can call me the optimistic economist.