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Economic Outlook

Economic Outlook

Little Change in the Forecast

‘More of the same.’

For the past several years now, that’s essentially what most economists have been saying when asked about what to expect next year.

Bob Nakosteen

And by ‘more of the same,’ they generally meant steady but decidedly unremarkable growth, which is what the nation, this state, and this region have been enjoying — and that’s the right word for it, because it certainly beats the alternative — for the past half-decade or so.

But over the past 18 to 24 months, ‘more of the same’ has come to mean some other things. These include speculation about a recession and even hard predictions that one is right around the proverbial corner; turmoil, especially in the form of a trade war with varying degrees of escalation; and a historically low unemployment rate that is a positive economic sign, obviously, but also a serious challenge to employers in every sector.

And as a new year and a new decade begins, we’re probably looking at … more of the same, as in all of the above, from the slow growth to the recession speculation to the employment challenges.

“Nationally, gross domestic product grows through a combination of an increase in the labor force and increased productivity, and both of those are really in a slump right now,” said Bob Nakosteen, a professor of Economics at Isenberg School of Management at UMass Amherst, while summing things up. “Productivity is in a long-running slump, and our labor force is growing much less quickly. So although there isn’t any obvious risk of a recession, there is an obvious risk of a real stagnation.”

Of course, 2020 is also a presidential election year, which adds yet another intriguing element to the equation, said Nakosteen, adding that, traditionally, election years, especially those featuring presidents seeking re-election, feature policies designed to provide an additional economic jolt or stimulus.

But this year, there’s really not much that can be done, he went on, adding that another tax cut is unlikely, and interest rates are already at near-historic lows, so they really can’t be lowered any further.

“Generally, those in power during election years try to pass legislation or encourage monetary policy that will trigger more growth,” he explained. “I don’t know how much room there is for that currently, especially with these big tax cuts that have ballooned the deficit, and especially with a split Legislature. They’ve completely hamstrung themselves in terms of fiscal policy — spending and taxes, and what can they do with monetary policy; interest rates are edging slowly back down, but there’s not much room to back down. And it’s completely obvious that interest rates just don’t have the effect that they used to on the economy.”

“There was a real consensus that there was real risk of a recession coming. But that discussion has abated, you’re not hearing those comments anymore. Now, there’s consensus that there’s nothing on the horizon that’s especially risky.”

As for the proverbial big picture, 2019 was supposed to the year the expansion, one of the longest in the country’s history, ended, at least in the minds of many economists, who have since amended their speculation and instead projected a recession for some time this year. And a good deal of this conjecture is focused on the dreaded yield curve, which has been a deadly accurate predictor of recession for decades now.

An inverted yield curve is the interest-rate environment in which long-term debt instruments have a lower yield than short-term debt instruments, and when such inversion happens, recession almost always follows; in fact, the yield curve has inverted before every U.S. recession since 1955.

This strikingly accurate track record has prompted many economists to say it’s not a question of if there will be slowdown and then recession, but when.

But Nakosteen said that, despite an inverted yield curve, talk of an imminent recession has diminished, largely because most of the other indicators are generally less forbidding.

“There was a real consensus that there was real risk of a recession coming,” he told BusinessWest, emphasizing ‘was.’ “But that discussion has abated; you’re not hearing those comments anymore. Now, there’s consensus that there’s nothing on the horizon that’s especially risky. There are negative things going on, especially the trade war, and there are parts of our economy that are not doing well, such as manufacturing and agriculture. But overall, there’s not much to indicate that we’re destined for a recession.”

That said, the risk of stagnation — defined as a prolonged period of slow economic growth, usually accompanied by high unemployment, as was seen in the early ’90s during the so-called ‘jobless recovery’ — is very real. And the ongoing struggle to find and retain talent will be the main reason why.

“Finally, the labor-force constraint, the fact that the labor force is growing very, very slowly, has become binding,” he explained. “We’ve been talking about this for years now — we knew it was coming, we just didn’t know when it would hit. And there’s a good chance that it finally has hit.

“Employers just can’t find workforce to fill jobs, and you can’t make more if you don’t have people to make more,” he went on, adding that this workforce crunch is impacting the Bay State perhaps even more than the country in general.

Indeed, Nakosteen believes that low unemployment — actually, what amounts to full employment — is likely the primary reason why the Commonwealth has been consistently lagging behind a national economy that is growing at a rate of maybe 2%.

“We have an industry mix of healthcare, high-tech, and education that should make us a fast-growing state, but we’re not; we’re growing more slowly,” he noted. “And I really think that’s because employers just can’t find workers.”

He said evidence of this can be found within statistics on commuting trends, with the Bay State drawing steadily larger numbers of workers from neighboring states, especially Rhode Island and New Hampshire.

“The downside of growth is always on the supply side, and I consider supply to be supply of labor, which is now confronting the state and especially Boston,” he said, adding that there are a number of factors, from the high cost of living to horrendous commutes, that are now limiting the workforce that can help companies in and around Boston grow.

High-speed rail linking east and west might provide some relief, he admitted, but that solution is likely years away if it happens at all.

As for the stock market, when asked to explain why the markets soared nearly 30% this year despite turmoil and talk of inverted yield curves and recession, he said simply, “I can’t.”

He did offer this, though. “I think you have to look at behavioral economics and behavioral finance rather than analytical economics and analytical finance to explain this. It’s a behavioral thing. [Yale economist] Robert Shiller noted that a narrative starts to dominate, and people start to believe it — everyone says the stock market’s great, and that’s kind of self-fulfilling.”

As for 2020, again, Nakosteen is predicting something he’s been forecasting for the better part of a decade now, even though the term hasn’t always meant exactly the same thing: more of the same.

George O’Brien can be reached at [email protected]

Economic Outlook

Higher Ground

Scott Foster says small cannabis businesses are being assailed with offers from large, out-of-state players.

The cannabis industry is in full swing in Massachusetts, with about three dozen dispensaries currently selling products for recreational and medicinal use — about a third of them in Western Mass. — not to mention cultivators, product developers, and a host of other related enterprises.

With 17% of cannabis sales going back to the state as taxes, and communities collecting at least 3% more — usually higher — it’s easy to recognize the financial impact.

But Scott Foster says said it’s important to remember the jobs being generated.

“You can get good employment in this field. A shop might have 20-plus employees working there,” said Foster, a partner at Bulkley Richardson, the Springfield-based law firm that launched a specialty cannabis practice last year to provide guidance for individuals, companies, and municipalities entering this very young industry. “These aren’t small businesses in the sense of 200 or 300 employees, but it’s not just four or five people working, either. It’s a pretty steady base of employment.”

And it adds up, said Jeff Hayden, vice president of Business and Community Services at Holyoke Community College (HCC), which recently launched a Cannabis Education Center to provide needed training and resources for people who want to enter this burgeoning industry.

“In Holyoke, 13 companies have applied for 21 different licenses,” Hayden told BusinessWest. “At present, 50 to 75 people are employed in cannabis-related businesses in Holyoke, but the anticipation is, within a year or two, that will be in the range of 400 to 500 people. It’s potentially a significant occupational opportunity for people. And if Holyoke is looking at 400 to 500, what is Springfield looking at? What about Northampton, Easthampton, Chicopee?”

This career potential is what inspired HCC to partner with the Worcester-based Cannabis Community Care and Research Network (C3RN) on the Cannabis Education Center.

“In Holyoke, 13 companies have applied for 21 different licenses. At present, 50 to 75 people are employed in cannabis-related businesses in Holyoke, but the anticipation is, within a year or two, that will be in the range of 400 to 500 people.”

“At HCC, we focus on what kinds of job skills people need in order to get jobs, whether entry-level or skills to do their job better. The fact that there is so much potential in this new industry in Massachusetts piqued my interest.”

No economic outlook is complete without touching on the early expansion of the cannabis industry in Massachusetts — and its immense promise for further growth, especially as dozens more shops plan to open their doors in 2020. Whether they’ll be able to maintain the sector’s early momentum remains to be seen — but most analysts agree the potential is certainly there.

On Fire

Foster recently came across an article that listed cannabis among the top four new legal practice areas, among heavyweights like cybersecurity.

“It’s interesting that cannabis has become a front-and-center legal issue across all the U.S., not just Massachusetts,” he said. “It’s becoming more recognized as a legitimate industry. Even though federal law hasn’t changed, it seems to be moving in that direction.”

Indeed, with Illinois joining the list this month, 11 states have now legalized recreational marijuana, and 19 others allow medicinal marijuana. With others set to follow this year, it’s not hard to imagine an eventual shift at the federal level, even if that doesn’t appear imminent.

As one step in that direction, the U.S. House of Representatives passed a bill in 2019 allowing banks to handle marijuana accounts; currently, most cannabis businesses are all-cash enterprises since they can’t use banks.

“Will banks ever start lending to the industry?” Foster asked. “I think yes, but most people in the industry think it probably won’t be in 2020. Maybe, but probably not. They’re expecting it to stall in the Senate, and Washington is occupied at the moment with lots of other stuff.”

For now, communities that have embraced this new world — like Holyoke, which is starting to fill its former mills along the canals with a mix of cannabis-related businesses — appreciate the additional tax revenue and retail traffic in town, but also, as Hayden notes, those jobs.

“Will cannabis provide thousands of jobs, like the state has predicted? Who knows, but 300, 400, 500 new jobs is significant,” he said. “More than 90% of the businesses in the Valley are small businesses — not by the definition of the Small Business Association, with 500 employees or fewer, but with 50 or fewer.”

Collectively, that’s a lot of positions to fill, especially as more of those small businesses come online.

“This is like any other business in the sense that they need people ready to work and have some skills to do the jobs they want to hire for,” Hayden said. “The more we can work as a community college on skills training that gets people ready for work, the better.”

In many cases, shops are hiring people who may face skill barriers to other types of employment; it’s a relatively even playing field in that, because the industry is so new, almost everyone needs training. HCC’s Cannabis Education Center is doing its part, both through courses and one-day programs like an upcoming workshop series on planning and starting a cannabis business, as well as getting into medical marijuana.

“Our goal is to get people into jobs, but in the context of a career,” Hayden said. “A job is a great thing, but if it’s just a 15- or 20-hour job, that’s not going to support you or your family for long. We want to get people on a career pathway through skills training.”

For example, he went on, “in cultivation, someone might come in trimming plants, working with growers, learning what the process is, and might become a cultivation technician, an assistant grower, even a master grower. There are definitely steps along the way to get not just a job, but a career in cannabis.”

Maturing Industry

Foster said he doesn’t have a crystal ball when it comes to the cannabis industry, but he does have his eye on some intriguing trends.

“We’re already seeing consolidation. Many of our clients are receiving unsolicited offers to buy them out. They’re not actively soliciting offers; people are contacting them. It’s mostly out-of-state money — and it’s not small money. That will be interesting to see, if the industry changes from being completely locally owned to being owned by out-of-state players, creating national cannabis businesses.”

Another murky area right now is the effectiveness of the state’s social-equity piece, which aims to provide priority access, training, and technical assistance to individuals and communities negatively affected by the drug war — a key target audience for HCC’s training efforts. “That’s another big unknown which may get some clarity in 2020,” Foster said.

What is clear is that the market, as it stands now, is humming along — and creating those jobs.

“All the folks I’m seeing are still trying to keep up with customer demand. At least from what I’m hearing, competition hasn’t slowed business. Will that change if New York and Connecticut were to legalize? Possibly,” he noted, citing casinos as a case study; there’s no doubt Foxwoods and Mohegan Sun have lost some business to their northern neighbor since the Bay State got into that business. “But for the moment, Massachusetts is the only game in town when it comes to cannabis.”

It’s a game with lofty goals and an uncertain — but undoubtedly promising — future.

“It’s a maturing industry,” Foster said. “So it’s going to have maturing-industry challenges.”

Joseph Bednar can be reached at [email protected]

Economic Outlook

Springfield Regional Chamber to Host Marijuana Professionals, Officials

There’s still a lot of confusion surrounding the cannabis industry.

Despite the fact that medical marijuana was legalized in Massachusetts in 2012, and recreational marijuana in 2016, the business community is juggling countless regulations and laws, whether looking to get into the cannabis industry themselves or just dealing with this new economy in general.

On Tuesday, Jan. 28, many of these questions will be answered.

From 12:30 to 5 p.m. at the Springfield Sheraton, the Springfield Regional Chamber will host “The Buzz About Cannabis: Marijuana in the Marketplace and the Workplace,” a collection of business, legal, and medical marijuana professionals, distributors, and entrepreneurs, as well as state cannabis officials, who will give attendees all the information they need to know about cannabis.

Nancy Creed describes retail cannabis sales as just one spur on the wheel of an industry that has pushed its way to the forefront over the last several years, and the president of the Springfield Regional Chamber is making plans to prepare business folks for this rising economic driver.

“The cannabis industry is clearly a, no pun intended, budding industry,” Creed said. “When you look at the revenue associated with it and the taxes, it really is the next economic engine of its time.”

It was a meeting with Cannabis Control Commissioner Kay Doyle that inspired Creed to begin researching this topic.

Nancy Creed describes retail cannabis sales as just one spur on the wheel of an industry that has pushed its way to the forefront over the last several years

“This, to me, was kind of a no-brainer,” Creed said. “We need to make sure that we are at the front of the industry and we are helping businesses either get into the industry or, on the flip side, deal with this new economy.”

The conference itself features an opening keynote from Doyle, breakout sessions focused on topics like “Business Structure and Banking in the Cannabis Industry” and “Cannabis in the Workplace,” and a closing keynote by Beth Waterfall, founder of Elevate Northeast, titled “Cannabis: What’s Next?”

Budding Goals

Chamber leaders thought carefully about what their goals were for the cannabis conference — the first time a chamber in the region has hosted an event of its kind.

Creed said this first conference will take a general focus, building a solid foundation on the basics of the industry — and leaving room for a potential focus on hemp, CBD, or other spokes on the wheel, as she calls them, next year.

The main goal of the conference is to educate attendees on what cannabis is, what they need to know when getting into the industry, and how it affects the economy.

“It’s a place for business people to come and get educated,” she noted. “I think it’s also an opportunity to recognize the growth of the cannabis industry and how that will positively impact our economy and be able to shine a light on it, so people see it as the future of our region.”

In order to accomplish this, she knew they needed to bring in several experts and professionals from different parts of the industry — including someone from the commission, Doyle, to talk about the landscape of the industry and the regulations entrepreneurs need to grapple with.

Next, Creed wanted to ensure the conference featured someone who could help businesses figure out what they needed to know about not only getting into the industry, but also what type of business they would be classified as.

Perhaps most importantly, they needed an expert in the banking industry. Because marijuana is still federally illegal, almost no bank will deal with marijuana businesses — although that could eventually change. Tina Sbrega, CEO of GFA Credit Union, will accompany Scott Foster, partner at Bulkley Richardson, to talk about banking and business structure.

“I want to make sure that businesses understand that, so they are successful when they start out, and aren’t just starting out not thinking through all of the things you need to think through to be a successful business,” Creed said.

She added that this conference is not just for people looking to get into the business, but also for people who just need to understand how it works.

Joanne Berwald, vice president of HR at Mestek; Erica Flores, attorney at Skoler Abbott; and Pam Thornton, director of Strategic HR Services at the Employers Assoc. of the NorthEast, will lead a breakout session about recruitment, retention, and employment law.

“There are a lot of complex laws that come into play,” Creed said. “We wanted to make sure, for the rest of the business world that isn’t interested in getting into the cannabis industry, that we had information about what is it like for the other folks working and hiring in a cannabis world.”

For the final breakout session, Creed explained that she wanted to bring in a panel comprised of a marijuana grower, a user, and a distributor, but did not have the internal resources to find people who fit the description. That’s when she reached out to Michael Kusek, cannabis journalist and publisher of Different Leaf magazine. He crafted a team — Noni Goldman, Leslie Laurie, Ezra Parzybok, Karima Rizk, and Payton Shubrick — to talk about their individual niches and how they navigate the cannabis industry in different ways.

Sowing Seeds

Overall, Creed hopes to help as many people as possible navigate a still new and quickly growing industry.

Because it is the first event of its kind, she is unsure just how many people will register, but believes that, once people learn more about the event, they will see the benefits of attending.

“I really don’t know how much the business community is going to understand the conference and embrace the conference,” she said. “Our hope is that they will, but it’s new.”

What she does know is that the cannabis industry is evolving at a rapid rate, and keeping up with the high demand is a must for the chamber.

“It’s a place for business people to come and get educated,” she said. “I think it’s also an opportunity to recognize the growth of the cannabis industry and how that will positively impact our economy, and be able to shine a light on it so people see it as the future of our region — because it’s here.”

Kayla Ebner can be reached at [email protected]

Economic Outlook

Forward Progress

Rick Sullivan says the region has considerable momentum carrying over in 2019, and it comes from most all sectors of the economy.

Rick Sullivan says the region has considerable momentum carrying over in 2019, and it comes from most all sectors of the economy.

Momentum.

Webster defines that word in several ways, including this one: ‘strength or force gained by motion or through development of events.’

Over the past few years, and especially in 2018, there was a good deal of motion and quite a few singular and ongoing events that have made this region stronger and created quite a bit of momentum, said Rick Sullivan, president and CEO of the Economic Development Council of Western Mass. (EDC).

And this movement has been across a number of sectors and most all area communities, not just Springfield, although that’s where it is easily most visible and palpable.

“We’re seeing a great deal of momentum across the region,” he said. “And it’s across the board — manufacturing, healthcare, higher ed, tourism.”

Elaborating, he cited just a few examples of this momentum, starting with the most obvious:

• MGM Springfield opened its doors on Aug. 24, but it began to impact the regional economy long before that, through the filling of more than 2,000 jobs, proving a boost for area hotels (see related story, page 27), inspiring movement toward additional market-rate housing projects in and around the downtown, and even awarding life-changing vendor contracts with several area businesses, from a bus company in Chicopee to a dry cleaner in the Forest Park section of Springfield.

• Eds and meds. The region’s two main economic drivers, education and healthcare, are thriving and becoming ever-larger contributors to economic development in the region, he said, noting, on the education side, that the region’s community colleges continue to find ways to step up and help meet workforce needs and provide specific skills needed in the workplace.

• The cannabis industry. This intriguing new era in Massachusetts history is impacting everything from the commercial real-estate market to traffic in downtown Northampton, where a dispensary became just one of two sites in Massachusetts selling marijuana for recreational use.

• A host of other forces are at play in downtown Springfield, ranging from new tenants on Bridge Street to the revitalization of Stearns Square; from a new Starbucks (actually, two of them; there’s also one at MGM) to soaring interest in new housing projects; from new train service coming into Union Station to the opening (soon) of the Innovation Center.

“When I’m out downtown, I generally have to wait in line to get lunch — and I’m happy to do it. That’s a good thing; it means the economy is doing well.”

• Progress continues with developing new sources of jobs in fields such as cybersecurity (Bay Path University and UMass Amherst are becoming regional and even national leaders in that field) and water technology — a $3.9 million demonstration center is set to open at UMass Amherst within the next two years.

• The construction industry, usually a bellwether for the economy, remains sound, with many companies reporting they have ample jobs on the books for the coming. “The phones have been ringing — and that’s always a good sign,” said Tim Pelletier, president of Ludlow-based Houle Construction.

Sullivan has another, far more personal measure of progress and momentum. “When I’m out downtown, I generally have to wait in line to get lunch — and I’m happy to do it. That’s a good thing; it means the economy is doing well,” he told BusinessWest, noting that there is considerably more foot traffic in the central business district, and many businesses are benefiting from this.

Yes, there are some challenges to contend with, and even a few possible storm clouds on the horizon; workforce issues are impacting most all sectors, and they could stifle the growth of some companies (see related story, page 22), and most economic analysts are predicting a slowdown (but not a recession) in 2019.

But for the most part, there is momentum and continued cause for optimism, even as question marks grow in number.

‘Stable’ is the word Tom Senecal uses when he talks about the local economy, and in most ways, ‘stable’ is good.

‘Stable’ is the word Tom Senecal uses when he talks about the local economy, and in most ways, ‘stable’ is good.

“Several sectors are doing very well — education, construction, multi-family housing, green energy, and others,” said Tom Senecal, president and CEO of Holyoke-based PeoplesBank, who spoke from the perspective of his own bank, which saw roughly 8% growth this calendar year, and what he’s seen and heard anecdotally.

Senecal said he’s seen a noticeable slowing of residential real-estate business over the past month to six weeks, after a strong start to the year — a development probably linked to rising interest rates — but overall, as he said, the local economy is chugging along nicely.

Keith Nesbitt, vice president and Commercial Banking Team leader at Community Bank’s Springfield location, agreed.

“I would describe what’s happening in Western Mass. as transition against a backdrop of real stability,” he said, using ‘transition’ to mean many things, from the beginning of the casino era to the passing of many businesses from one generation to the next. “There’s a lot of certainty around those well-established, mature businesses that we have in this region. And those businesses that haven’t been around as long but are growing … they’re pretty solid, and they’re pretty confident.”

Banking on It

Both Senecal and Nesbitt put that word ‘stable’ to use early and quite often as they talked about the local economy and what they’re witnessing.

And in most all respects, ‘stable’ — and ‘steady’ and ‘predictable,’ words that were also used — is good, Senecal noted, adding, as many others have over the years while analyzing the local market, that while this region hasn’t soared like some others, including Boston, where the commercial and residential markets are white hot, that means it isn’t susceptible to the dramatic falls that those cities and regions also see.

“Fortunately, and sometimes unfortunately, we don’t see the highs and lows economically; we’re sheltered a little bit,” he explained. “We have a very stable economy when it comes to healthcare, education, and our nonprofit sector — those are three stable industries that keep Western Mass. insulated from the highs and lows.

“I would equate ‘stable’ to ‘predictable,’” he went on. “And for a small business, predictability is a huge part of job growth and just economic growth in general for small business.”

His own business moved forward with several initiatives in 2018, including the acquisition of First National Bank of Suffield and the start of work to convert the former Yankee Pedlar restaurant into a new and intriguing branch. And he said many businesses had the requisite confidence to move ahead with their own growth initiatives, be it through workforce expansion, new facilities, or new business lines.

And he expects this stability to continue into 2019, although possible, if not probable, additional interest-rate hikes (the Fed was set to vote on one as this issue went to press) could bring uncertainty, and therefore greater cautiousness, to the fore.

“Anything that stays stable and is predictable is good for economic development, and anything that is unpredictable is a slowdown in economic development,” he said, adding that there is uncertainty regarding everything from interest rates to the trade war.

“I would equate ‘stable’ to ‘predictable.’ And for a small business, predictability is a huge part of job growth and just economic growth in general for small business.”

Like Sullivan, though, Senecal said MGM has provided a boost to the local economy in several ways — through the jobs it has created and its contribution to greater vibrancy downtown. And it is just one of the many factors contributing to the improved picture locally.

Others include the steady performance of education and healthcare and movement toward creating new sources of jobs.

Sullivan cited the work being done at Bay Path and UMass Amherst in cybersecurity — Bay Path recently entered into a partnership with Google, for example — and creation of the water-technology demonstration center as developments to watch.

“Those are jobs of the future, and there’s real excitement about what can develop,” he noted. “There are now some partnerships with large companies, like Google, and tremendous promise.”

Elaborating, he said that, across the region, colleges and universities are playing key roles in providing individuals with the hard and soft skills to thrive in today’s technology-driven economy, and thus, they’re playing a major role in economic development.

Examples abound, from Holyoke Community College’s new culinary-arts facility, which is helping to meet the needs of individual employers like MGM and a growing field in general, to Greenfield Community College and its efforts to train workers for the manufacturing sector, to Holyoke Community College and Springfield Technical Community College working together with MGM to create the Casino Career Training Institute.

“What it comes down to is that economic development for this region, and across the country, for that matter, is all about workforce — developing, finding, and retaining talent,” he said. “And the good news for us is that we have a very robust higher-ed presence — four-year public and private, and the community colleges as well — and the future is bright.”

Returning to the subject of downtown Springfield, he said that, in addition to that waiting in line for lunch, he’s seen other signs of vibrancy and, most importantly, interest on the part of developers in investing in that area.

“We’ve had a number of investors express interest in possible hotels and potential housing, both market-rate and workforce-housing projects,” he noted. “And those are discussions that may not have beem happening in … pick a time period — five years ago, 10 years ago, 20 years ago. It’s been a while since we’ve seen this.”

Keith Nesbitt describes what’s happening in this region economically as “transition against the backdrop of stability.”

Keith Nesbitt describes what’s happening in this region economically as “transition against the backdrop of stability.”

Nesbitt concurred, and noted that, while the multi-family housing segment of the commercial real-estate market is heating up — it has been for some time — there is movement across the spectrum, much of it fueled not only by MGM, but by a promising outlook for the future.

“Long-time property owners are realizing that now is the time to realize value, so they’re putting those properties on the market,” he said of multi-family units but also other holdings. “And those that are speculating on the future are generally thinking that now is the time to get into the market based on some of those other transitions that are going on. So the commercial real-estate market has been very consistent.”

Steady As She Goes

“Consistent.’ ‘Stable.’ ‘Predictable.’ ‘Steady.’

Those are the words you hear most often in discussion of the local economy today and what is likely to happen in 2019.

There is a good amount of uncertainty in the air regarding everything from trade balances (or imbalances, as the case may be) to interest rates to the political scene in Washington.

But locally, stability and momentum seem to be the prevailing forces.

And they should enable the region to build on that momentum in the year ahead.

George O’Brien can be reached at [email protected]

Economic Outlook

Running out of Gas?

Bob Nakosteen projects a slowdown for the economy, but not a recession.

Bob Nakosteen projects a slowdown for the economy, but not a recession.

What’s that old saying about death and taxes? It notes that they are the only real certainties in this world.

Actually, there’s another one: when it comes to the economy and making plans for the future, business owners and consumers certainly don’t like uncertainty.

Unfortunately, there is no shortage of that commodity at the moment, and the volume may only be growing. Indeed, there is political uncertainty — lots and lots of that — and uncertainty about the housing market. And the trade war with China. And with the workforce — the nation as a whole is at or near full employment, and business owners and managers across all sectors are asking out loud where the workers are going to come from (see related story, page 22). There’s uncertainty about the stock market, except that there’s considerable amounts of turbulence (we’re certain about that). And about interest rates and what will happen with them. And about whether the tax cuts introduced a year ago will continue to be a source of economic fuel (although the consensus seems to be that they won’t be).

Add it all up, and, as we said, there is a lot of uncertainty out there.

Certainly enough to likely cause a slowdown in the economy, but not a recession in the technical sense of that word, said Bob Nakosteen, a professor of Economics at the Isenberg School of Management at UMass Amherst and a frequent voice in BusinessWest’s annual Economic Outlook.

“When there’s uncertainty, businesses tend to pull in their horns, and consumers, by and large, do the same; they wait until there’s more certainty about what they can expect,” said Nakosteen, adding that, instead of a growth rate between 3.5% and 4%, which is what the country and this region saw in 2018, both are probably looking at 2% to 2.5% for next year.

Again, that’s not a recession, but it is a slowdown.

Like Nakosteen, Karl Petrick, an associate professor of Economics in the College of Arts and Sciences at Western New England University, is predicting that this is what the nation, this state, and this region will see.

Note the future tense.

“When there’s uncertainty, businesses tend to pull in their horns, and consumers, by and large, do the same; they wait until there’s more certainty about what they can expect.”

“I really don’t think the slowdown has started yet. But I think it’s coming,” he said, adding quickly that there are signs things are cooling off somewhat.

He pointed to robust sales in the days and weeks following Thanksgiving as solid evidence that many Americans still have the confidence to spend. But a few months of severe turbulence on Wall Street, large amounts of political uncertainty, and a host of other factors will eventually erode some of that confidence, he added.

Karl Petrick says various forces, from turbulence on Wall Street to political uncertainty, will soon start to generate more cautiousness on the part of consumers and business owners.

Karl Petrick says various forces, from turbulence on Wall Street to political uncertainty, will soon start to generate more cautiousness on the part of consumers and business owners.

“We’re starting to see people become more cautious,” he noted. “They start to see what’s going on, they start to look at their 401(k) statements — even if they’re fairly young, they start to look at such things — and we’re going to start to see people be more cautious. And if and when that happens, companies start to become more cautious, too, because they start to see their markets dry up a bit.

“The momentum will carry into 2019, but unless we see some more certainty, that momentum will peter out into 2020,” he told BusinessWest. “The earliest a recession could happen is 2020, but there’s a lot of time between now and then to avoid that.”

For this issue and its Economic Outlook focus, BusinessWest talked with Nakosteen and Petrick about the proverbial big picture.

On-the-money Analysis

As he talked about the state of the economy and what is likely to happen in 2019, Nakosteen acknowledged that some economists are, in fact, using the dreaded ‘R’ word as they look into their crystal balls.

He’s not ready to join them — yet. But he said there are more than enough signs that a slowdown is coming — if it hasn’t arrived already.

Starting with the housing market.

“The housing market is clearly slowing down, and it is so important to so many segments of the economy and so many parts of the country,” he told BusinessWest. “It’s not well-recognized, but we’ve had a period since 2012 of one of the most sustained increases in housing prices in our history; in fact, it comes close to matching what happened during the price bubble [of 2007-08]. The difference is that there isn’t this froth around it, and there isn’t this huge toxic-credit buildup.

“I don’t see this as a danger to the economy in terms of it exploding and dragging us into a recession,” he went on. “But I do see a slowdown affecting the overall economy and the economy of this state.”

Beyond the housing market, there are other signs, or indicators, of whitewater, including the trade war, if it can be called that, with China, Canada, and other countries.

Nakosteen said this region doesn’t produce many, if any, of the products directly affected by rising tariffs, but this area is affected indirectly because its precision manufacturers provide links in the supply chains that are impacted by the tariffs.

Petrick agreed. “We need to find some stability when it comes to our trade relationships,” he said. “Trade wars are not good for anybody.”

There’s also diminishing impact from the tax cuts implemented a year ago — “those cuts gave the economy a sugar high, but almost everyone thinks that effect will dissipate in 2019,” said Nakosteen — as well as all that turmoil on Wall Street.

Indeed, as of this writing, the S&P was in negative country after being up more than 8% for the year a few months ago — and there wasn’t much time left in 2018 to get onto the plus side.

Then there’s the workforce issue. While things are bad in this region in terms of employers finding good help (see related story, page 22), they’re much worse in other markets, including Boston, said Nakosteen.

“One of the things going on in this state is that we’re running out of workers, especially in the eastern part of the state,” he noted. “For the past 18 months, we’ve hired a lot of people, and no one’s quite sure where they’ve come from. And at some point, the labor-force constraint is going to be binding to our economy, and that’s going to slow things down; it’s going to be like squeezing a rock.”

But the biggest issue heading into 2019 is the one that’s fueling some of the problems listed above — growing uncertainty about the economy, the markets, jobs (GM announced plant closings and significant layoffs, for example), trade, and more.

This uncertainty generally leads to greater cautiousness, which manifests itself in several ways, said those we spoke with, starting with the obvious, such as slowdowns in home sales and other significant purchases.

Some signs are perhaps less obvious, such as the roller-coaster ride on Wall Street, said Petrick, adding that, when there is uncertainty, or no clear trends, the market becomes far more “news-driven,” as he called it, which manifests itself in wild swings, sometimes over the course of just a few hours, as news breaks.

“These big swings happen with the smallest provocation because people want to react to something,” he explained. “And whatever comes up on the news wire is what they’re reacting to.”

Reading the Tea Leaves

Looking at the proverbial big picture, Petrick said political uncertainty and economic uncertainty pretty much go hand-in-hand.

“That’s how we’re wired,” he said, adding that about the only thing that appears certain for 2019 is ongoing uncertainty.

Nakosteen agreed.

“Business decisions, as well as household decisions, regarding big-expense items such as cars, appliances, and houses, depend in large part — not totally, but in large part — on expectations of the future: ‘am I going to lose my job?’ ‘Am I going to get a raise?’ ‘Is my product going to keep selling?’ ‘Are my suppliers going to be disrupted?’”

Like he said, in many cases, they will hold off on such purchases until there is more uncertainty.

And as things are looking now, it might be a pretty long wait.

George O’Brien can be reached at [email protected]

Economic Outlook

The Employment Picture

As the job market tightens, Meredith Wise says, it becomes an employees’ market, with business owners increasingly having to pay for talent.

As the job market tightens, Meredith Wise says, it becomes an employees’ market, with business owners increasingly having to pay for talent.

Meredith Wise says it’s probably not a recent addition to the business lexicon. But it was certainly new to her when she heard it the first time.

‘Ghosting’ is the phrase in question, and it refers to a situation where an individual applies for a job, is given an offer, accepts the offer, passes a drug test, is given a starting date, accepts the starting date, and when it comes … he or she just doesn’t show up for work.

“That individual doesn’t feel the need or have the courtesy to call the company and say, ‘I’m not going to take the job; I have another opportunity that’s going to be better for me’; they just don’t show up,” said Wise, executive director of the Employers Assoc. of the NorthEast (EANE), adding that, when she first heard the term from one of her members, she thought it was an aberration and certainly not a common occurrence.

Suffice it to say that she has been corrected on that viewpoint at several of EANE’s monthly member roundtables over the past year or so.

“When I first brought it up I said, ‘oh, this can’t really be happening — this isn’t something people would do,’” she recalled, flashing back several months. “I expected pushback and people saying, ‘no, that doesn’t happen to me.’ Instead, there was agreement around the table that it is happening — a lot.”

Wise said this pattern of ghosting, which is happening in many sectors and at all rungs of the ladder — from entry-level service jobs to senior engineering positions — might be a form of role reversal when it comes to the employment process, and a very clear sign that this is an employees’ market.

“When employers get applicants, there are many times when they don’t communicate back to people; they don’t say, ‘thanks for applying, but we don’t have anything at this time,’” she explained. “As a candidate, you feel your résumé or your application has gone into a black hole. And it almost feels to me like the candidates are turning the tables on employers and saying, ‘I’m not going to get back in touch with you, and I’m just going to do what’s best for me.’”

Bryan Picard, president of Springfield-based Summit Careers Inc., agrees with Wise’s take and can certainly verify the overall tightness of the market, at least through most of this year — and the ghosting phenomenon.

To capture it, he cited the example of a company in Northampton trying to fill a basic warehouse position, with the emphasis on trying.

“We had to fill that same position six or seven times,” he explained, “because the first five people just didn’t show up for the job, and this is a position paying $5 an hour more than the average. There were so many opportunities for strong candidates to go somewhere else, they just didn’t show up.”

Finally, Summit decided to send several people to this client at the same time with instructions to pick the one it liked most — on the theory that at least one of them would show. And a few did, actually.

Meanwhile, the firm has strongly advised its clients to condense the overall hiring process — especially the period between when one is offered a job and when one starts — to hopefully keep would-be employees from becoming ghosts.

“The reality is that minimum wage went to $12 an hour four months ago. There are still companies paying $11 an hour, but the vast majority of them are paying more than what the minimum wage is because they know it’s required.”

All this is part of life in the current employment market, one that is expected to continue into 2019, in most ways and in most sectors — although Picard is seeing some signs of a slowdown in manufacturing (more on that later), and economists, in general, are projecting that the pace of expansion will slow in the year ahead.

“Overall unemployment numbers should stay steady into the first quarter of 2019, said Larry Martin, director of Business Services and Market Research for the MassHire Hampden County Workforce Board, noting that unemployment was quite low — 4% to 5% — across the region this year. “We see things being steady in the first quarter without any major shifts or changes — we should remain fairly flat.”

Wise agreed, and said flat means more challenging times for employers. Indeed, for now and the foreseeable future, the laws of supply and demand clearly favor employees, she said, with business owners adjusting, out of necessity, with slightly higher wages and better benefits.

“Employers are now sometimes having to buy talent,” she explained. “The applicant pool just isn’t what it was, and to lure people away from their current employer, they may need to be paying a few dollars per hour more to get people to come.”

For this issue and its Economic Outlook 2019, BusinessWest takes an in-depth look at the employment market and what employers can expect in 2019. For the most part, it is more of the same.

Work in Progress

Picard told BusinessWest that, although the minimum-wage hike to $12 an hour — the first in a series of incremental increases contained in the so-called ‘grand bargain’ legislation — doesn’t become law until Jan. 1, practically speaking, it went into effect long ago.

“The reality is that minimum wage went to $12 an hour four months ago,” he said. “There are still companies paying $11 an hour, but the vast majority of them are paying more than what the minimum wage is because they know it’s required.”

Bryan Picard says he’s seeing a slight slowdown in manufacturing, but overall, the job market remains tight.

Bryan Picard says he’s seeing a slight slowdown in manufacturing, but overall, the job market remains tight.

And this upward movement on wages, at least on the lower end, is yet another sign of how tight the labor situation is and how this is an employees’ market. And while there is speculation on just how long it will stay that way, employers for the moment face a number of challenges, and are responding accordingly, said Wise, who said it starts with the applicant pool, or what passes for one, in many cases.

“Employers are finding real problems with the applicants — they’re just not getting the volume of applicants they used to get, and the people they are getting just don’t have, in many cases, the qualifications and the skills that they’re looking for.”

But the problems certainly don’t end there, Wise said, adding that a huge issue for employers is finding applicants that can pass a drug test. The percentage of applicants that can’t would surprise some, but certainly not anyone working in human resources today, she told BusinessWest.

And if they do have the skills and they can pass a drug test … that generally means that they have many opportunities to choose from and are a solid candidate to become a ghost.

“When we would get candidates of a higher caliber that we would send on a temp-to-perm type of position, the challenge we saw was that they didn’t just have one job offer, they had five job offers,” said Picard. “And the companies that were really struggling starting bringing up their pay scales.”

Indeed, in response to all this, wages are increasing, but the pace of increase is still sluggish, as the chart on page 24 shows.

“I think wages are slightly higher, but wage growth is, overall, very slow,” said Wise, adding that there are several reasons for this, including the fact that retiring Baby Boomers are being replaced by less-experienced, lower-paid employees. Also, pay increases at the top end of wage earners are smaller increases for lower-wage earners, resulting in a lower overall average increase.

Beyond ‘paying for talent,’ to whatever extent they are doing so, employers are also responding to the tight market by altering their hiring policies and practices in some ways to keep good talent from going elsewhere and thus becoming ghosts.

“These trends are forcing employers to go back to what might be considered best practices,” Wise explained, noting, as one example, that after having an applicant accept an offer, the company in question is working harder to stay in touch with that applicant until they arrive for work, asking if they have any questions or just staying in communication with them.

Meanwhile, others are sending soon-to-be employees what she called “swag bags” or “swag items” such as a jacket with the company’s logo on it or a mousepad or other items as a gesture designed to show that the individual is valued.

Meanwhile, and as noted earlier, companies are being advised to condense the hiring process, especially the period between when one is hired and when that individual is slated to start work.

“If there is someone good that you want to put in a position, you put them in right away,” said Picard, adding that he went to far as to encourage clients to skip or accelerate the interview the process, hire promising candidates, and essentially interview them after they were hired.

Hire Power

If all this seems a world apart from what was happening only a few years ago, it is, said Picard, adding that conversations he had with colleagues in this field from across the country revealed that this past year, and especially this past summer, was among the most difficult times anyone could remember when it came to securing qualified help for clients.

“They said it was the worst summer they’d seen in … forever, or at least 50 or 60 years, and that’s understandable with unemployment being at an all-time low,” he said, adding that, while things were not that bad in this market, employers in many markets struggled to find and keep talent.

That’s certainly been the case with precision manufacturing, one of the specific sectors that Summit specializes in.

“Every single company out there right now is looking for CNC machinists,” he told BusinessWest. “Many have more work than they can get out the doors, or more sales orders than they have people to fill them.”

“Employers are finding real problems with the applicants — they’re just not getting the volume of applicants they used to get, and the people they are getting just don’t have, in many cases, the qualifications and the skills that they’re looking for.”

The $64,000 question heading into the new year concerns how long things will stay this way.

As noted earlier, Picard said he has witnessed a slowdown when it comes to some segments of the manufacturing sector, and somewhat easier going when it comes to finding employees for those clients.

“I think things are changing; a lot of times, manufacturing is a leading indicator for what’s going to happen with the economy,” he explained. “The summer was very tight, but now, probably over the past month and a half, things were not as tight. We’re seeing very qualified, strong candidates that are coming through that four months ago … well, we would be begging for someone with half the talent that we’re seeing right now.”

Elaborating, he said he projects that 2019 will be “an interesting year” for his company and a less-busy one for some of his clients, especially those in manufacturing, and he comes to that conclusion mostly by comparing numbers from the fourth quarter this year compared to last year.

“In the fall of 2017, we were very busy, and I brought on someone to help in November,” he recalled. “I said, ‘this is our slowest time of the year, it’s a great time to come on, we’ll be able to do some coaching, things will be nice and easy.’ About January, she said, ‘when is it going to slow down again?’ because it never did.”

This year, it has, and Picard says it may be a sign of what’s to come in the year ahead.

Martin, meanwhile, is projecting essentially the status quo when it comes to the employment market — in manufacturing and most other sectors.

“For manufacturers, it’s going to be steady going, and they are going to need skilled help because of the individuals who are retiring,” he explained. “That’s not going to slow down whatsoever.”

He noted that the region essentially absorbed the arrival of MGM Springfield and its hiring of more than 2,000 people without major disruption to most sectors of the economy, even the broad culinary field, primarily because of proactive steps in anticipation of that seismic event.

“There was a lot of foresight and forecasting done in advance of MGM,” he explained. “There were a lot of new partnerships established, especially with the community colleges to help meet specific needs, such as those in culinary.

“Several sectors were impacted — culinary, retail, financial services, and others — but enough forecasting was done ahead of time to prepare for MGM’s arrival,” he went on. “And a lot of companies planned ahead and internally provided financial encouragement or other types of encouragement for existing staff.”

The challenge moving forward will be with the inevitable churn that the casino complex will experience, he went on, adding that while MGM, working with those partners he mentioned, had enough employees to get the doors open, it must now deal with ongoing turnover and the task of keeping workers in the pipeline.

Learning on the Job

As he talked about the job market and what may come in 2019, Picard concurred with Wise when she talked about many workers not exactly being courteous when it comes to taking better offers and instead becoming ghosts.

Likewise, he said all this amounts to a kind of payback, if you will, for how employers act when the laws of supply and demand are tilted in their favor.

He warned, however, that too much moving around and a great many lines on a résumé may come back to … well, haunt those ghosts when things change and the market is not so tight.

For now, though, it’s an employees’ market and will be for the foreseeable future, and employers looking to land good talent quickly and easily likely have a ghost of a chance of doing so.

George O’Brien can be reached at [email protected]

Economic Outlook

Right Place, Right Time

John Doleva shows off the Basketball Hall of Fame’s renovated theater, one of many improvements at the hall.

John Doleva shows off the Basketball Hall of Fame’s renovated theater, one of many improvements at the hall.

They call it the ‘need period.’

There are probably other names for it, but that’s how those at the Greater Springfield Convention & Visitors Bureau (GSCVB) refer to the post-holiday winter stretch in this region.

And that phrase pretty much sums it up. Area tourist attractions and hospitality-related businesses are indeed needy at that time — far more than at any other season in this region. Traditionally, it’s a time to hold on and, if you’re a ski-related business, hope for snow or enough cold weather to make some.

But as the calendar prepares to change over to 2019 — and, yes, the needy season for many tourism-related businesses in the 413 — there is hope and optimism, at least much more than is the norm.

This needy season, MGM Springfield will be open, and five months into its work to refine and continuously improve its mix of products and services. And there will also be the American Hockey League (AHL) All-Star Game, coming to Springfield for the first time in a long time on Jan. 28 (actually, there is a whole weekend’s worth of activities). There will be a revamped Basketball Hall of Fame, a few new hotels, and some targeted marketing on the part of the GSCVB to let everyone know about everything going on in this area.

“The last half of 2018 has been great, and we’re very optimistic — our outlook for tourism is really positive for 2019. Certainly, MGM is a factor — it’s a huge factor, it’s a game changer — but it’s just part of the story.”

So maybe the need period won’t be quite as needy as it has been.

And if the outlook for the traditionally slow winter months is brighter, the same — and more — can be said for the year ahead, said Mary Kay Wydra, president of the Greater Springfield Convention & Visitors Bureau, noting that expectations, based in large part on the last few quarters of 2018 and especially the results after MGM opened on Aug. 24, are quite high for the year ahead.

“The last half of 2018 has been great, and we’re very optimistic — our outlook for tourism is really positive for 2019,” she told BusinessWest. “Certainly, MGM is a factor — it’s a huge factor, it’s a game changer — but it’s just part of the story.”

Elaborating, she said MGM is helping to spur new development in this sector — one new hotel, a Holiday Inn Express, opened in downtown Springfield in 2018, and another, a Courtyard by Marriott, is set to open on Riverdale Street in West Springfield — while also filling more existing rooms and driving rates higher.

Indeed, occupancy rates in area hotels rose to 68.5% in October (the latest data available), up nearly 2% from that same month in 2017, and in August, they were up 5% (to 72.6%) over the year prior.

Meanwhile, room revenue was up 4.6% in October, from $113 a night on average in this region to $119 a night, and in August, it went up 7.2%.

And, as noted, MGM is just one of the reasons for optimism and a bright outlook in this sector, Wydra said. Others include the renovated hoop hall, yearly new additions at Six Flags, and the awesome drawing power of the Dr. Seuss museum on the Quadrangle.

An architect’s rendering of the renovated third-floor mezzanine at the Basketball Hall of Fame, which includes the tributes to the inductees.

An architect’s rendering of the renovated third-floor mezzanine at the Basketball Hall of Fame, which includes the tributes to the inductees.

For 2019, the outlook is for the needle to keep moving in the right direction, she said, noting that some new meetings and conventions have been booked (more on that later); Eastec, the massive manufacturing trade show, will be making its biennial pilgrimage to this region (specifically the Big E); the Babe Ruth World Series will again return to Westfield; and the AHL All-Star weekend will get things off to a solid start.

John Doleva, president of the Basketball Hall of Fame and a member of the executive board of the GSCVB, agreed.

“With MGM now in the marketplace and being active, there does appear to be a lift, much more of an excited spirit by those that are in the business,” he noted. “Everybody is saying that, at some level, their business is up, their interest in visitation is up — there is a general feeling of optimism.”

Getting a Bounce

Doleva told BusinessWest that MGM opened its doors toward the tail end of peak season for the hoop hall — the summer vacation months. Therefore, it’s too early to quantify the impact of the casino on attendance there.

But the expectations for the next peak season are quite high, he went on, adding that many MGM customers return several times, and the hope — and expectation — is that, on one or several of those return trips, guests will extend their visit far beyond the casino’s grounds.

“Once people return a few times, they’re going to be looking for other things to do,” he said. “I definitely feel a sense of excitement and anticipation, and I’m definitely looking forward to next summer when it’s the high-travel season, and really get a gauge for what the potential MGM crossover customer is.

“Conversely, there are probably individuals that would probably have the Hall of Fame on their list of things to do,” he went on, “and now that there’s more of a critical mass, with MGM right across the street, I think we rise up on their to-do list.”

But MGM’s arrival is only one reason for soaring expectations at the hall, said Doleva, adding that the facility is in the middle of an ambitious renovation project that is already yielding dividends.

Indeed, phase one of the project included an extensive makeover of the lobby area and the hall’s theater, and those steps have helped inspire a significant increase in bookings for meetings and events.

Mary Kay Wydra says 2019 is shaping up as a very solid year for the region’s tourism industry.

Mary Kay Wydra says 2019 is shaping up as a very solid year for the region’s tourism industry.

“Our renovations have led to a great number of facility rentals for events that are happening in our theater, our new lobby, and Center Court,” he said, adding that the hall was averaging 175 rentals a year, and will log close to 240 for 2018. “Before, the theater wasn’t a hidden gem, it was just hidden; it was like a junior-high-school auditorium — it was dark, it was gray, it had no life. Now, it’s a great place to have a meeting or presentation like a product launch.”

Phase 2 of the project, which includes a renovation of the third-floor mezzanine, where the Hall of Fame plaques are, and considerable work on the roof of the sphere, will commence “any minute now,” said Doleva, adding that the work should improve visitation numbers, but, even more importantly, revenue and profitability.

The improved numbers for the hall — and the optimism there concerning the year ahead — are a microcosm of the broader tourism sector, said Wydra, adding that a number of collaborating factors point toward what could be a special year — and a solid long-term outlook.

It starts with the All-Star Game. The game itself is on a Monday night, but there is a whole weekend’s worth of activities planned, including the ‘classic skills competition’ the night before.

“Even with the average daily rate going up and occupancy growing, we still have that need period — which is true for all of Massachusetts,” she noted. “When you have an event like the All-Star Game in January, that really helps the hotels and restaurants.”

Additional momentum is expected in May with the arrival of EASTEC, considered to be New England’s premier manufacturing exposition. The three-day event drew more than 13,000 attendees last year, many of whom patronized area restaurants and clubs, said Wydra, adding that MGM Springfield only adds to the list of entertainment and hospitality options for attendees.

The Babe Ruth World Series is another solid addition to the year’s lineup, she noted, adding that the teams coming into the area, and their parents, frequent a number of area attractions catering to families.

Analysts say MGM Springfield has a far-reaching impact on the region’s tourism sector, including higher occupancy rates at area hotels and higher room rates.

Analysts say MGM Springfield has a far-reaching impact on the region’s tourism sector, including higher occupancy rates at area hotels and higher room rates.

Meanwhile, the region continues to attract a diverse portfolio of meetings and conventions, said Alicia Szenda, director of sales for the GSCVB, adding that MGM Springfield provides another attractive selling point for the 413, which can already boast a host of amenities, accessibility, and affordable hotel rates.

In June, the National Assoc. of Watch and Clock Collectors will stage its 75th annual national convention at the Big E, she said, an event that is expected to bring 2,000 people to the region. And later in the summer, the Professional Fire Fighters of Massachusetts will bring more than 900 people to downtown Springfield.

Those attending these conventions and the many others slated during the year now have a growing list of things to do in this region, said Wydra, who mentioned MGM, obviously, but also the revamped Hall of Fame; Six Flags, which continues to add new attractions yearly (a Cyborg ride is on tap for 2019); and the Dr. Seuss museum, which is drawing people from across the country and around the world.

“The Seuss factor is huge,” said Wydra. “It’s a big reason why visitation is up in this region. Seuss is a recognizable brand, and the museum delivers on the brand, and they keep reinventing that product.”

Staying Power

This ‘Seuss factor’ is just one of a number of powerful forces coming together to bring the outlook for tourism in this region to perhaps the highest plane it’s seen.

Pieces of the puzzle continue to fall into place, and together, they point to Western Mass. becoming a true destination.

As noted, even the ‘need period’ is looking less needy. The rest of the year? The sky’s the limit.

George O’Brien can be reached at [email protected]

Cover Story Economic Outlook Sections

Experts Don’t Foresee Any Rocking of the Economic Boat

economicoutlookartMore of the same. That’s what the experts are predicting for this region, and the country as a whole, when it comes to the economy. And by more of the same, they mean growth that is steady if unspectacular — even with tax reform — and few if any signs of what could amount to real trouble. “Another boring year,” was how one economist put it. But for many businesses, boring is more than acceptable.

As a student — and a professor — of economics, Bob Nakosteen fully understands that the region and the nation as a whole are, as they say, due for a recession.

Maybe even overdue.

Indeed, eight and a half years is a long time to be in an expansion, if history and especially 20th-century history is any guide, and that’s about the length of the run the country has been on, said Nakosteen, a long-time educator at UMass Amherst who pegged the summer of 2009 as when the Great Recession ended and the upswing — as unspectacular as it has been, for the most part, in this region — began.

But he quickly noted that there’s no actual relationship between how long a country has been in an expansion and when it’s due for a recession. Time isn’t officially one of the factors that determine such things, he noted, adding that none of the issues and indicators that do are — at this moment, at least — pointing toward recession.

Bob Nakosteen

Bob Nakosteen

The issues in the state economy, especially in Western Massachusetts, are not macro-economic nearly as much as they are structurally micro-economic; there are individual sectors that are really struggling.”

“The expansion is old, certainly, but there’s nothing on the horizon to interrupt the expansion,” he told BusinessWest, adding quickly that a host of factors will shape what course a continued expansion takes. “The issues in the state economy, especially in Western Massachusetts, are not macro-economic nearly as much as they are structurally micro-economic; there are individual sectors that are really struggling.”

Karl Petrick, an economics professor at Western New England University, agreed, and summoned another word for what he’s projecting for at least one more year: boring.

Karl Petrick

Karl Petrick

Trickle-down doesn’t really come to fruition the way people say it will. It’s been promised for decades and decades, but it’s never really happened.”

“Unless you were on Twitter, last year was pretty boring,” he said, tongue firmly planted in cheek while focusing his remarks on what was happening in this region economically. And that was essentially the same thing that’s been happening for the past several years — steady if unspectacular growth that amounts to a few percentage points on average and not the kind of boom times that traditionally follow a recession, especially like the one of almost a decade ago now.

“Even with the tax break, the projections are for the U.S. economy to grow at 2.5% in 2018, and in 2019, 2.1%,” he said. “And if we did see a big increase in growth, it’s very likely that that the Fed will raise interest rates to slow down inflation. The forecast is for another boring year — I hope.”

Indeed, for many in business, boring translates into a decent year, and that’s what Tom Senecal, president of Holyoke-based PeoplesBank, said many of his clients — commercial and residential alike — experienced.

He told BusinessWest that the residential real-estate market is enjoying a surge fueled by low inventories, and that many individual sectors are experiencing steady growth. And he expects tax reform to lift most boats still higher.

Tom Senecal

Tom Senecal

Inventory is extremely low in many area communities, and this is having a big impact on prices. We’re going back to seeing sale prices in excess of asking prices, and that hasn’t happened since the late ’80s and early ’90s.”

“With corporate tax rates projected to decrease from 35% to 20%, that will have a significant impact on most businesses,” he went on. “I expect that to be a determining factor in what our local economy will be like in 2018.”

There are other determining factors, obviously, and some areas of concern, both nationally and locally, including persistently stagnant wages.

Despite steady growth in the economy and soaring corporate profits that have fueled a nearly 20% rise on Wall Street this year, wages have remained flat, said Petrick. And he doesn’t believe — despite what leading supporters say — that tax reform will change that equation. And if wages remain stagnant, that might slow the economy down.

“Trickle-down doesn’t really come to fruition the way people say it will,” he explained. “It’s been promised for decades and decades, but it’s never really happened.”

Meanwhile, Nakosteen said the precipitous decline of traditional retail could pose some problems regionally (more on that later), as could a host of other factors ranging from escalating student debt to tighter immigration laws that could keep some foreign students from landing on area college campuses.

But overall, these concerns are not expected to significantly alter the picture or impact those projections for more of what the region has seen over the past several years.

Onward and Upward

“Stable.”

That’s the word Senecal summoned early and often as he talked about the local economy, and it’s another word business owners always like to hear.

He said the region’s economy has historically been fueled by education and healthcare (‘eds and meds’), and that trend continues. And those sectors are, well, stable, to say the least.

“If you think of the spin-off economies in the Western Mass. market, we clearly benefit from those sorts of industries [healthcare and education] that are not recession-proof, but they certainly come through recessionary times much more stable than the rest of the economy,” he said. “And I see this in the numbers from our residential loans and our commercial loans. The stability and continued growth has been there, and we expect it to continue throughout next year.”

Beyond eds and meds, Senecal noted, a number of sectors are doing “pretty well,” as he put it. These include ‘green’ energy businesses, commercial construction (although moreso in the eastern part of the state than this region) and the residential real-estate market, which, as noted earlier, has picked up dramatically over the past few years.

“Inventory is extremely low in many area communities, and this is having a big impact on prices,” he explained. “We’re going back to seeing sale prices in excess of asking prices, and that hasn’t happened since the late ’80s and early ’90s; it’s clearly a seller’s market right now.”

Surveying the scene locally as well as nationally, those we spoke with said there is no indication of anything that will disrupt this stability to any significant degree.

But that doesn’t mean there aren’t some question marks concerning the year ahead. And perhaps the biggest concerns tax reform and what it will mean.

Petrick and Nakosteen said such reforms — usually measures to be administered during a recession, not an expansion — can’t (or shouldn’t) be expected to trigger the wage hikes and subsequent consumer spending predicted by supporters of the legislation, because … well, because history shows this isn’t what happens, they told BusinessWest.

“Tax cuts really have little effect,” said Nakosteen, “especially when the economy is not in recession and is near full employment.”

Also, early and unofficial polling of business leaders indicates that wage increases for their employees are not in their plans.

“Many big corporations have already said that, whatever tax breaks they get, they’ll use them to buy back stock,” Petrick noted. “That will do wonders for the stock market, but there’s no indication they’ll use that tax break to raise wages.”

But Senecal projected that tax reform might, in fact, provide a real boost for the economy in the form of investments made by business owners.

“Tax reform has a significant impact on corporate spending,” he opined. “I think that, right now, a lot of businesses are waiting and seeing on tax reform to determine how aggressive or reserved businesses are going to be come 2018.”

Economic Indicators

As for other factors that might impact the year ahead, to one degree or another, Petrick put wages, and the stagnancy of same, at the top of that list.

“We see growth, but the foundation for continued growth continues to be a little bit shaky, in terms of wages at the national level and the state level,” he told BusinessWest. “They’re just not growing, even as unemployment comes down.

“And that is a bit of conundrum for us at the state level and the federal level, because that puts more pressure of households, especially with uncertainty with what’s going to happen with the individual mandate and how that might impact insurance rates,” he added. “It also impacts state tax revenue, because if wages don’t go up, the state doesn’t collect more.”

There are many reasons why wages are stagnant, he went on, listing everything from soaring health-insurance costs for employers to the decline of labor unions, to the retirement of Baby Boomers and their replacement by younger workers earning lower salaries. But the bottom line is that, generally, flat wages are not good for the economy.

Meanwhile, Nakosteen said the continued decline of traditional retail would further change the local landscape, and it might impact the economy in some ways.

Giant retailers like Sears, Toys R Us, Kmart, and others are closing stores in huge volumes, leaving malls with large boxes to fill (or not, as the case may be) and worries about their very existence. Meanwhile, many smaller retailers are disappearing from the landscape, for reasons ranging from the intrusion of online shopping to a lack of a succession plan.

All this is creating a number of empty storefronts and a lot of commercial real estate for sale and lease, said Nakosteen, adding that the problem is impacting even the most vibrant of downtowns, including Northampton’s, where tenants are asking, ‘why are lease rates so high if so many storefronts are empty?’

“And that’s a very good question,” he said, adding that the higher rates will impact existing retailers and perhaps dissuade others from coming downtown.

But it’s an issue in nearly every area community.

“There are so many empty storefronts,” Nakosteen went on, “and the retail sector is so important to so many downtown areas.”

Meanwhile, workforce issues might also have an impact on the course and strength of the ongoing expansion, he noted, adding that a lack of qualified workers within some sectors might stifle growth.

“The state, as a whole, has issues with the labor force not growing fast enough to accommodate the economy,” he explained. “And Western Mass. is even worse. We have very slow labor growth here; you can’t grow the economy faster than you can hire people to fill the jobs.”

Interest rates could play a role as well, the experts noted, adding that, if the economy does start heating up, the Fed will likely raise rates to keep it from overheating and sending inflation higher.

“Prime rate effects people’s home-equity loans, and it effects commercial borrowers,” Senecal explained. “And if the Fed increases rates two or three times, and that’s clearly their intent, that could have an impact on spending.”

Bottom Line

‘Stable. ‘Boring.’ ‘Steady.’ Those aren’t exactly headline-generating adjectives when we’re talking about the economy and where it might head in the months to come.

But they represent reality, and for many in this region — which, as has been noted countless times in the past, doesn’t enjoy stunning highs and crippling lows like other regions — those words are welcome, and much better than the alternative.

And if tax reform works, as Senecal and others believe it might, the region just might wind up doing better than ‘more of the same.’

 

George O’Brien can be reached at [email protected]

Economic Outlook Sections

On the Bright Side

By Richard Sullivan

Richard Sullivan

Richard Sullivan

The state of the region’s economy is strong, and the economic outlook is bright. That’s a simple statement, but let’s look at the facts that support that optimism.

We all have read of the important investments that MGM and CRRC, the Chinese rail-car manufacturer, are making in Springfield. Less-reported is the some $5.2 billion of economic-development projects that have recently occurred or are currently underway in our region.

In a 2016 study, the Economic Development Council of Western Mass. (EDC) catalogued the growth in each community — from housing developments to manufacturing companies expanding and relocating to the area; from transportation investments to growth in our public and private education systems. That study shows strong and important regional investments, and this trend is continuing.

MGM and CRRC are certainly important regional economic-development projects for the jobs they are creating, the taxes they will pay, and the many public benefits they are required to provide through their host-community agreements. However, the biggest economic impact the projects will have is when they contract with local businesses as part of their operational and supply chains. MGM specifically is using best efforts to annually contract locally for $50 million in goods and services. These dollars will stay local, provide additional economic opportunities, and create more jobs in companies that are part of the fabric of our communities, hiring our neighbors, paying local taxes, and supporting our local charities. It is an opportunity we are capitalizing on, but one that we can’t lose sight of.

Another bright spot within the local economy is tourism. You may think Boston, San Francisco, or New York, but maybe not Western Mass., when it comes to this important sector. However, tourism is the third-largest industry in the region. Approximately 3 million visitors come to the area each year, spending $750 million, producing an estimated $17 million in state and local taxes, and supporting 5000 jobs.

Mary Kay Wydra, president of the Greater Springfield Convention & Visitors Bureau, is bullish on the growth of tourism in Western Mass., with the addition of MGM, the Dr. Seuss Museum, a soon-to-be-refurbished Basketball Hall of Fame, continued investment at Yankee Candle and Six Flags, and more. She is confident that annual visitorship will grow. Tourism is a vital part of our economy and will become even more important beginning in 2018.

Still another source of optimism and good news is the growing amount of entrepreneurial energy in the region.

Indeed, at the recent “State of Entrepreneurship in the Valley,” hosted by Steve Davis and the EDC entrepreneurship committee, the focus was on the growth of a relatively new sector for the region — innovation, startups, and entrepreneurship. In 2015 and 2016 alone, more than 9,000 people attended a Valley Venture Mentors (VVM) event; there are currently 613 part-time and 227 full-time jobs in the startup ecosystem, and just under $27 million of revenue and investment was created in the region. If all the startups were under one roof, they would represent the 11th-largest company in Springfield.

The entrepreneurship ecosystem is growing up and down the Valley. VVM works closely with initiatives in Franklin County and SPARK in Holyoke; our local colleges and universities have all carved out leadership positions; Greentown Labs, based in Somerville, Mass., has opened a manufacturing office at the Scibelli Enterprise Center; and the Grinspoon Entrepreneurship Initiative is a national leader in elevating the importance of entrepreneurship and recognizing entrepreneurial excellence among college students. A new group, Women Innovators & Trailblazers (WIT), is establishing itself in order to ignite a women-led innovation economy in Western Mass. and beyond. This is an exciting and quickly growing sector in the region.

I see additional new sectors growing in the region that can become centers of excellence for Western Mass. This year, UMass Amherst, in cooperation with the EDC, hosted an event highlighting its national leadership position in the field of green technology and the environment. The event was sponsored by the Massachusetts Clean Energy Center and focused on building technologies, water innovation, and clean energy and storage. Companies from across Massachusetts came to discuss the quickly growing green-technology cluster and the partnerships that can be developed between the private sector and the university for research and development, but also talent development.

Bay Path University recently staged its fifth annual Cybersecurity Summit, showcasing the work it is doing in the field of cybersecurity. President Carol Leary, who serves as a member of the Department of Homeland Security’s Academic Advisory Council, said “it is critical for higher education to be a central part of this emerging cyber ecosystem. We are developing the right talent, the diverse talent needed to be a part of the cybersecurity workforce. To the students pursuing a cybersecurity career — you are the future, you are qualified, and we need you more than ever.”

Western Mass., because it is home to a significant number of universities, colleges, community colleges, and technical schools, finds itself in an enviable position because it can supply the workforce of the future.  Still, there is no doubt that the biggest issue facing our existing companies, and the companies of the future, is their ability to find, develop, and retain a high-quality workforce.

We need to coordinate with all the great workforce-development organizations in the region and leverage the high-quality education institutions that call Western Mass. home to meet this demand.

When we do, our future economy will be bright.

Richard Sullivan is president of the Economic Development Council of Western Mass.; [email protected]

Economic Outlook Sections

A Time to Stay on Track

By Nancy Creed

Nancy Creed

Nancy Creed

We might remember 2017 as the year of the much-anticipated reopening of Union Station as a dramatically renovated transportation hub. The more than $90 million renovation additionally created office and retail space, transforming this area of Springfield’s North End. The Innovation Center on Bridge Street welcomed new tenants with continued construction on additional office and retail space, and the new, $11.8 million Mercedes-Benz of Springfield dealership opened in Chicopee.

This past year was also one during which many projects made significant progress toward their anticipated 2018 completion dates.

Awaiting us in 2018 is a mix of opportunities and challenges. Springfield and the region have been experiencing unprecedented growth in the last couple of years. While 2018 is the year in which we will see the finishing touches put on some major projects and programs, we are also faced with the uncertainty and potential effects of healthcare, tax reform, and ballot initiatives which could impact all of us.

On the growth side, the I-91 viaduct construction is ahead of schedule, with the highway expected to be in full use by February; production of MBTA subway cars at the new 204,000-square-foot, $95 million CRCC rail-car factory off I-291 in East Springfield will kick off in 2018; and the much anticipated opening of the $950 million MGM resort casino is on track for a late-2018 opening.

There is also opportunity to help small businesses grow and prosper. The city of Springfield has launched “Rise Up Springfield,” an innovative collaboration between the city, the Assoc. of Black Business & Professionals, and the Springfield Regional Chamber. Powered by Boston-based Interise’s award-winning StreetWise MBA curriculum, this seven-month, intensive, hands-on program provides the knowledge and know-how business owners need to create and manage a three-year strategic business plan. This a key opportunity for the city to capitalize on the entrepreneurial spirit of the region and to encourage our smaller, less-established businesses get to the next level in their growth.

Advocates of a ballot question are pushing for an additional income tax on those making above a certain income threshold in order to fund some of the areas I mentioned above. However, other states have taken a similar approach, which only resulted in businesses relocating to lower-tax jurisdictions. At its core, this proposal is bad for business. Why would we tax talent — our state’s principal competitive advantage.”

While we are encouraged and excited about growth in the region, our business community will face some significant challenges in the coming year. Healthcare continues to remain of grave concern. Costs continue to rise at uncontrollable rates, not only impacting the bottom lines of our businesses, but crippling the state budget. With 40% of the state budget allocated to MassHealth, there is virtually no room for additional funding in critical areas such as education, transportation, and local aid.

Advocates of a ballot question are pushing for an additional income tax on those making above a certain income threshold in order to fund some of the areas I mentioned above. However, other states have taken a similar approach, which only resulted in businesses relocating to lower-tax jurisdictions. At its core, this proposal is bad for business. Why would we tax talent — our state’s principal competitive advantage?

Another ballot question that we could be faced with is one that provides for paid family and medical leave. Not only does our business community understand the value of fringe benefits and attracting and retaining the top talent, but they want to do the right thing for their employees. Those businesses that are financially able to offer ‘above and beyond’ benefits do so, but not every small business is in a position to compete with the benefits offered by a Fortune 100 company.

The ballot question as proposed would require employers of any size to offer paid leave at a rate of 90% of an employee’s wages. It is estimated that this would have a $1 billion financial impact across the Commonwealth.

There is one other ballot question we could be faced with come November 2018 — an increase in the minimum wage, to $15 an hour by 2022. A back-of-the-napkin calculation estimates this to be an increase of 25% to a company’s salaries/wages line item. Again, while the business community wants to do the right thing, it comes at a cost to the competitiveness of our state.

While we are optimistic about our growth, we are concerned about what lies ahead that could derail that growth. We are concerned for our business community here in Western Mass., but equally concerned as to what the impact could be across the state, on the Commonwealth’s fiscal health, on attracting new growth, on remaining competitive with our neighboring states and across the country, and on ensuring Massachusetts and our region remain at the forefront of innovation.

Throughout the chamber’s 127-year history, we have worked to encourage and facilitate economic growth. We have faced and weathered challenges and advocated on behalf of the region’s businesses. Our mission will continue in 2018 and beyond, as we support and collaborate with regional businesses and advocate for them at the local, state, and federal levels and work to ensure our continued growth is not stunted.

Nancy Creed is executive director of the Springfield Regional Chamber of Commerce; (413) 755-1309.

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