The Year Ahead

by Madeleine Maccar | Jan 28, 2023
The Year Ahead
With the clean slate of a new year upon us, the time is ripe for taking stock of the economic factors currently at play and the financial future coming into clarity.

But since those forces impacting South Jersey’s financial well-being, economic stability and overall business landscape aren’t bound by our calendars flipping to another year, local experts expect to see the trends we’ve reluctantly gotten used to in 2022 settling in for 2023. Chief among them is learning how to live with uncertainty, an especially difficult adjustment after what area economists, financial experts, business advisors and wealth managers agree was an unusually prolonged period of relative calm and quiet before the pandemic’s onset heralded an unprecedented shift caused by converging and tangentially related factors.

“The economic outlook for the coming year shows a high degree of uncertainty for the nation and state,” predicts Robert Vaden, an economics professor at Rutgers University–Camden and former New Jersey Department of Labor chief of occupational research. “This is not surprising, given the developments over the 2020-2022 period, which has largely been shaped by the many dislocations resulting from the pandemic. Last year, in 2022, inflation emerged as a major challenge, further complicating the outlook for where the national and New Jersey economies will go over the next year or two.”

And while that inflation is still driving up the prices of consumer goods to the point where it’s looking like one of last year’s biggest pain points isn’t expected to relent in 2023, a similar hike in interest rates is further squeezing the average household and limiting their purchasing power in a domino effect of related consequences.

“A big underlying macroeconomic factor is just the raising of interest rates,” says Dr. Jordan Moore, a finance professor at Rowan University’s Rohrer College of Business. “The American economy runs on debt to some degree, and so the problem is that when you raise interest rates, sure, the Federal Reserve is just raising this one short-term interest rate, but all these other interest rates are sort of tied together. So people have all this existing debt that is more expensive to service. Or they might have been interested in moving to a new house but now they won’t because the mortgage payments are going to be higher. Or they’re thinking about buying a new car but they’d have to finance a bunch of it, and that would be at 5% instead of 3%.”

Local business owners are feeling the financial pinch, too. Howard Bryerman, co-owner of document and hard-drive destruction PROSHRED Southern New Jersey & Delaware, points out that while a drop in gasoline prices is getting all the attention, “the price of diesel fuel has been elevated for some time.”

“Our diesel costs have doubled over the last year and, in addition to labor, is one of our major costs,” he says. “I believe this will continue into 2023, and I think any business in New Jersey that uses diesel is feeling the same impact. … When you consider international influences that could trickle down to the local level, like with China ramping up again and using a tremendous amount of commodities, one of them being energy, that huge demand could ultimately drive even higher energy prices here and at the national level. What happens to us if diesel continues to go up?”

What to Expect from 2023

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With the only certainty being that no one can truly predict what the future will bring, the long-term viability of any company is something any forward-thinking entrepreneur is seriously examining. It’s an assessment that combines flexible thinking and proactive planning as high inflation, high interest rates and high costs of not only doing business but also going about one’s daily life all stubbornly linger.

“There’s a lot of things that are going to start to become very apparent,” observes Capital Collection Services owner David Sopourn. “When people start seeing the increases in their interest rates that they’re getting on their credit cards, their floating mortgage notes, things of that nature, they’re going to see that they used to pay a few dollars in interest a month and now they’re paying a few hundred a month and are falling behind, that’s going to be a wake-up call.”

As Moore points out, given the cyclical nature of the economy, we were due for something of an economic correction, independent of the past few years’ contributing influences. But getting used to those corrections once they’ve stabilized does mean that the shakiest days are most likely behind us.

“I think the Federal Reserve will continue to raise rates to some degree, but there’s some sense that inflation has been moderating a little bit,” says Moore. “The last several months have been a big shock to consumers but, if you look at it historically, we’ve had very low interest rates for a long time, and now they’re more normal and what they should be. People are sort of used to that and there’s this understanding that interest rates probably aren’t going to pop back down to 1% any time soon … There’s all these factors relating to changes in interest rates that are real negative factors and headwinds on economic growth but, to my sense, a lot of this has already taken place.”

John Torrence, managing partner of Masso Torrence Wealth Management, agrees that there’s plenty of evidence that 2023 “is going to look very similar to 2022.”

“I think inflation is going to be very difficult to eliminate,” he says. “I think there’s no compelling reason, from a stock market perspective, to think that stocks are going to trade significantly higher than they trade currently because, quite frankly, the earnings are going to be a challenge. You distill that to a local business, we have homebuilders who are strapping in for a tough year. Interest rates have gone up. The pricing they could have gotten for homes six months ago, they’re not getting them anymore.”

It might feel like more of the same means nothing but doom and gloom ahead, but it is important to remember that even the stormiest economies eventually give way to sunnier times—and have their own important lessons to impart. And on a cloudy but unseasonably warm day in early January, Stan Molotsky used the weather as an illustrative example of our current financial climate.

“It’s overcast, uncertain, unpredictable, almost record-high weather, and then all of a sudden, almost-record lows—that’s where we are,” says the president and CEO of SHM Financial Group, a 65-year veteran of the financial-services industry. “The uncertainty has never been more uncertain: I don’t ever remember people who are supposedly the top people in their field being so divided as to what’s going to happen economically or stock-market-wise. It’s challenging, but it’s exciting and there’s tremendous opportunities if you keep yourself focused and hope for the best but prepare for the worst.”

The Local Impact
Business owners like Bryerman, whose companies work with a number of different industries, have seen firsthand just how the new year is already playing out in South Jersey. While Bryerman notes that a truly diverse client base safeguards as best as possible against the troubles plaguing any outfit that’s too reliant on one sector, his previous experience in finance and on Wall Street taught him lessons that he’s carried into the company he and his wife Simone run.

“The local economy is highly correlated with the macro environment,” he says. “You can’t decouple the two. … I think as long as there’s high energy costs, elevated labor costs and high interest rates exacerbated by government policies at the macro level, you’ll see a high cost of doing business at the local level—and New Jersey was already a challenging state to operate in because of its high taxes.”

Meanwhile, Sopourn wryly observes that it’s an erroneous assumption to think bad times for the economy are good times for those in collections.

“When people learn I’m in collections, I get the old nudge on the shoulder and a ‘Oh, I guess you guys are going to do really well with a recession coming,’” he says. “I’ve been through this before and typically what happens for us is what happens to everyone else: We all see reduced revenue.”

But South Jersey’s heavy healthcare presence, as well as the region’s rich offering of goods, services and organizations, advantageously positions it with a diverse business landscape. Needs-based sectors, rather than those depending on the ebbs and flows of discretionary spending’s feasibility, do tend to fare downturns better for the more recession-resilient natures of their work.

“Locally, we’re in a vacuum,” Molotsky says. “We never really feel the tremendous boom in certain things and, fortunately, we don’t feel the tremendous bust of things, either. We’re made up of a multitude of different kinds of businesses, and there’s an incredible amount of people employed in the growing hospital and healthcare industry. Those incomes are relatively steady and somewhat predictable, which I think is a considerable positive for the South Jersey community.”

Art Leiby, president of The Lerepco IT Group, gratefully notes that his largely upbeat view of 2023 is based on heartening trends he’s seen in his clients, as the end result of weighing factors like the pros and cons of investing in a cybersecurity system versus managing the fallout of a breach is being decided in Lerepco’s favor.

“I have not seen a negative impact like what the economists have said is leading to a recession,” he says. “Now, that might be because we are focused on looking for prospects that are looking to upgrade their cybersecurity, and cybersecurity is a growing, evolving element … For us, it’s key to be talking to the decision-makers in terms of business needs and how we’re going to help business productivity, to sell it from a business-partner perspective in terms of the impact it will have on their business.”

Leiby has also noticed that his legal and medical clients seem to be navigating today’s turbulent waters with significant success.

“The attorney groups, they might have lost some people, but they’re growing and they’re starting to hire again,” he says. “I have a number of different clients in the medical field, and that hiring is just crazy. I haven’t had any clients or prospects tell us they’re laying people off: Amazon might be laying off thousands of people, but here in South Jersey, I haven’t had that kind of feedback.”

So is a Recession Coming?
In addition to the financial rockiness it portends, the term “recession” is an emotionally loaded one, too, especially for those who keenly recall the long slog and harrowing fallout of 2007-2009’s economic downtown. But it’s important to recall that the late aughts’ Great Recession was a combination of factors that we’re not seeing today: a peak unemployment rate of 10%, or nearly 15 million people; the term “too big to fail” viciously precipitating huge bailouts buoying countless financial institutions that were, like the entire system itself, on the verge of collapse; the housing bubble burst, putting people’s very homes in peril as mortgage foreclosures reached record levels.

“The ‘Great Recession’ was an economic catastrophe of the first order,” Vaden says. “Often, the goal of economic policy appears simply to avoid a repeat … the event was that bad.”

Regardless of whatever policy has been or will be enacted, numerous financial professionals point to the demand for workers, underscoring how the availability of jobs should be a differentiating factor when a recession does come down the pipeline. A job market that skews toward workers’ favor, they predict, is expected to offset the worst of the havoc a recession traditionally wreaks on everything from individuals to industries.

“If you look at holiday spending, both nationally and even locally, it was still pretty strong—but there is that feeling that, since the recession hasn’t really gripped everyone yet, it might have been the last of people thinking, ‘Yeah, food costs more and gas is costing more, but let’s enjoy the holidays since I’m still solvent,’” Torrence explains. “This might be one of those unique recessions where you see the upper echelon in certain fields are feeling it far more than rank-and-file employees, since those rank-and-file workers were under-employed. Most local businesses, if you look at them over the last year or 18 months, have bemoaned the fact that it’s unbelievably difficult to get qualified workers.”

Moore, however, does note it’s entirely possible that the question we should be asking isn’t when a recession is coming, but rather if we’re in the midst of one now.

“I think we probably are already in a recession, technically, since there’s a delay in economic data being reported,” he says. “We don’t know until a few weeks after the quarter ends whether we’ve had growth or decline. I wouldn’t be surprised if there’s already a recession, or if there is a mild recession coming in. … But I think ‘recession’ is kind of like a buzzword that people get caught up in: If the economy is growing by 1% or shrinking by 1%, that’s not really that big of a difference. What matters is how much does it grow over the course of a generation or your working career.”

The Bottom Line
“The problem the Federal Reserve faces is this: Raise interest rates too much and an economic slowdown or even a recession might occur,” Vaden adds. “If the increase in interest rates is too small, then higher inflation and higher nominal interest rates will continue. The goal is to achieve an economy that is not too hot and not too cool.”

Should that just-right economic balance remain perniciously elusive in the face of a recession, there are always measures that individuals and organizations can take to position themselves to weather the storm with minimal impact while also being ready for those emergencies, both personal and professional, that no one can anticipate.

“No question about it, you want to have a little more liquidity right now than you might have had in the last few years or so,” Molotsky advises. “There is just so much uncertainty.”

Bryerman agrees that financial reserves are crucial in surviving difficult times of unsteady footing. Adopting a “proactive, not reactive” outlook of preparing for a downturn while cooler heads are still prevailing allows Proshred to nimbly respond to the unpredictable.

“The number-one defense against risk and uncertainty is to have plenty of liquidity in your business in the way of cash reserves,” he affirms. “There is no substitute for that since you’ll never be able to predict unforeseen events.”

While Sopourn is concerned about current—and future—market conditions, he is hopeful that tough times will nudge more people toward the diminishing art of self-sufficiency.

“When you see a bottle of mayonnaise is up to $9 and you’re wondering what the hell is going on when your mother used to whip up a batch herself, maybe it’s a good thing,” he posits. “Maybe this will bring us back to a place where we’re doing more for ourselves, like preparing our own food, instead of expecting others to do it for us.” 

Torrence, like so many other experts, believes the key differentiator in a company’s long-term viability is how prepared they are to ride out difficult economic times—not just in terms of available resources and the rainy-day funds they’ve socked away, but when it comes to their resolve.

“You’re just going to have to become accustomed to the way things are now until costs start to come back down,” he says. “You have to be patient. There’s not a short-term fix: Only time can fix this.”

Author: Madeleine Maccar


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