The new year has arrived, which makes it a good time to review 2016 and provide some thoughts and even a resolution about the year ahead. To say the least, it was a fascinating 12 months, and it may get even crazier.
In 2016, the national economy grew at a moderate pace, but hardly as fast as anyone wanted. Visions of tax cuts, spending increases, and regulatory changes are dancing in our heads, providing hopes for a better year ahead. But it is easier to propose than to legislate, especially because the budgetary implications of those potential changes are not all positive.
Indeed, once the Congressional Budget Office starts doing its analysis of the financial impact of the new president's proposals, sticker shock may appear. The current fiscal stimulus plans will add greatly to the budget deficit. An estimated budget shortfall of greater than $1 trillion is likely unless the tax cuts are restructured, the new spending is reduced, current programs are slashed, or both. Who knows what will come out of the battles that will result from the newfound fiscal realities?
As for the region, business activity continued to lag. Both New Jersey and Pennsylvania saw some job growth in 2016, but it was disappointing. The minimal economic gains worsened already poor state budget conditions. The unwillingness of both states' politicians to face the budget realities only adds to the belief that conditions may have to get worse before any real action is taken. And they could.
The Delaware Valley, though, is showing signs of more vibrant business activity, though it, too, is hardly booming.
Looking forward, this year should be better, but don't expect any miracles.
Undoubtedly, Congress will cut some taxes and add some spending. But how much is unclear, and the timing is critical. The economic impact of fiscal policies generally takes six months or longer to be felt. It may not be until the fall or early winter before the economy benefits significantly from the changes.
Meanwhile, if the budget deficit balloons, the Federal Reserve members will not sit on their hands. Interest rates could rise faster than expected, partly offsetting the positive fiscal impact. Still, we should see somewhat stronger U.S. growth in 2017, but nothing spectacular.
As for the regional economy, conditions are changing. The Comcast Technology Center will be nearing completion, and the ramping-up process will be under way. This nexus of innovation should spin off significantly more activity. Similarly, if some of the Camden development plans are begun, we should see a pickup there, as well. Growth in the greater Philadelphia area should be very solid.
But although the local economy may kick into higher gear, don't expect that to be the case with either the Pennsylvania or New Jersey economy. Both states are stuck in the mud and have few imaginative plans to get things growing faster.
Which leads me to some New Year hopes:
For the nation, I hope for real tax reform, not just tax cuts, which would only exacerbate the problems. That the tax code is a disaster is undeniable, but simply reducing taxes doesn't get at the real problem, which is all the special tax breaks and loopholes. They help create the unfair system while often providing little or no additional economic activity.
For Pennsylvania, I hope that there is some real desire in the legislature to find ways to expand the economy, other than not raising taxes. That strategy has not only failed, but it also has helped create worsening budget conditions. New spending on key sectors, such as energy and trade, would help, but that would require doing something many legislators have refused to do: putting money where their mouth is.