LI economic outlook for 2016: Growth picks up a bit of speed
Long Island’s pharmaceutical and healthcare industries should continue to boom next year, but the broader job market still faces challenges, local economists said.
They predict the Island’s economy will grow 2 percent to 2.5 percent in 2016, slightly faster than it did in 2015, when it was held back by severe winter storms, a strong U.S. dollar that reduced exports, and shaken consumer confidence after August’s stock market plunge.
In 2016 “we will see continuing growth but it will be a little bit on the anemic side,” said Richard Vogel, dean of Farmingdale State College’s business school.
With the Island’s unemployment rate down to 4.1 percent, wages should rise more in 2016 than they have in recent years, said John A. Rizzo, chief economist at the Long Island Association trade group and a Stony Brook University professor. “The labor market is ever tightening, so one would finally expect wage hikes to be at least consistent with the rate of inflation: 2.5 percent or more,” he said.
Wage increases may in turn lead to an increase in consumer spending, which accounts for about 70 percent of economic activity on Long Island, Rizzo said.
Vogel said the cost of energy will also be a key factor in how fast the local economy expands. Steep dives in gasoline prices this year gave consumers more money to spend.
“A lot depends on what we see with oil prices.” he said. “People have been spending more but will they continue to?”
— JAMES T. MADORE
Home prices likely will continue their slow, steady gains, though the rise in short-term interest rates could pose a challenge to buyers, real estate experts said.
If mortgage rates begin to climb as expected, the increase could spur a short-term “burst of housing activity” as buyers try to lock in rates before they rise further, said Michael McHugh, senior vice president in the Melville office of Freedom Mortgage.
However, if mortgage rates rise so much that monthly payments become significantly less affordable, home prices could take a hit, he said.
Long Islanders seeking rental apartments have a lot of new options, and more are on the way, said Mitchell Pally, chief executive of the trade group Long Island Builders Institute. The largest is the Ronkonkoma Hub retail-residential complex, which could include as many as 1,450 apartments. — MAURA MCDERMOTT
Pharmaceuticals are the bright spot of local manufacturing. Drugmakers are adding hundreds of workers as they expand to meet increased demand for low-cost generic prescription and over-the-counter medicines.
Most of the companies are in Suffolk County, which gained a new player this year, Ropack Inc. The Montreal-based company plans to spend $43.6 million on facilities in Hauppauge and Commack. Ropack, which makes and tests drugs for pharmaceutical giants, says it will create more than 100 jobs.
Vitamin maker Bactolac Pharmaceutical Inc. and its sister, Sciegen Pharmaceuticals Inc., are adding a seventh building in Hauppauge, creating 150 jobs. — JAMES T. MADORE
The aerospace and defense industry, with an estimated 500 companies and 25,000 workers on Long Island— down from 80,000 in its 1980s heyday — faces a mix of challenges and opportunities, said Jamie Moore, president of the trade group ADDAPT.
The Pentagon’s efforts to mothball the A-10 Warthog ground-support jet and shift to a new version of the C-5 Galaxy cargo jet led to contract cancellations, he said. Local companies will have a chance to bid for the modernized version of the C-5.
Injecting uncertainty into the market is Lockheed Martin’s November acquisition of helicopter maker Sikorsky Aircraft, which uses several Island subcontractors.
A new wild card is upstart Luminati Aerospace, which acquired a Calverton sky-diving facility in October and has been hiring aerospace and computer experts. The company plans to build high-altitude, solar-powered, unmanned aircraft that can stay aloft for long periods. — KEN SCHACHTER
COMMERCIAL REAL ESTATE
Brokers forecast a strong year for industrial real estate as limited supply and growing demand drive prices higher.
Third-quarter vacancy rates for industrial properties of 3 percent were down nearly a percentage point from a year earlier, according to the brokerage firm Jones Lang LaSalle, and David Pennetta of broker Cushman & Wakefield’s Melville office said thereis little to no new construction on the horizon.
In contrast, the office space market stagnated in the third quarter, brokerage CBRE said. Overall asking rents dropped to $26.23 per square foot from $26.64 last year.
“You don’t see Long Island attracting a lot of new office companies,” said David Chinitz, president of the Commercial Industrial Brokers Society of Long Island — VICTOR OCASIO
TRAVEL AND TOURISM
The Long Island Convention and Visitors Bureau expects travel and leisure revenues in 2016 to rise above the $5.3 billion booked in 2014, the last year for which a figure is available. The group had projected a 2 percent to 4 percent increase for 2015.
Tourism draws 9.1 million visitors to the Island and supports 74,000 jobs at local hotels and destinations.
An impediment to growth remains Long Island MacArthur Airport, with limited service that makes it difficult and often expensive for tourists to fly there.
— TOM INCANTALUPO
The effort to transform Long Island into a launchpad for startup companies remains embryonic, but local officials say they continue to see potential.
The region’s largest venture capital group, Topspin Partners, is taking a more active role. And earlier this year, the state awarded $1.5 million to a nonprofit that supports local startups, Accelerate Long Island, for a seed fund that will be matched by private investors, providing $3 million in capital.
Still, the number of startups here has remain relatively unchanged over the last three years, with about 200 in Nassau and Suffolk, said Accelerate’s executive director Mark Lesko. Hopefully, he said, the rise in funding will lead to more startups. — JOE RYAN
A stronger economy and road improvements will likely boost retail sales on the Island, said Marshal Cohen, retail analyst with Port Washington-based NPD Group.
Consumers will shop more locally and continue to spend on “experiences” rather than merchandise, he said. More of them, particularly those between the ages of 24 and 45, will shop online.
To compete with those online sales, brick-and-mortar retailers will offer more heavy discounts throughout the year, Cohen said.“I think you are going to see Black Friday every month.”
— AISHA AL-MUSLIM
Motorists and homeowners are likely to reap the benefits of a worldwide glut of crude oil — barring unforeseen supply disruptions.
With benchmark U.S. crude trading around the mid-$30s a barrel, Long Island gasoline prices are about 57 cents cheaper than a year ago. Prices began falling in early July of last year — from a Nassau-Suffolk average for regular of $4.036 a gallon July 2, 2014.
Heating oil, which warms the majority of Long Island homes, is about 91 cents cheaper than at this time last year. For an average household using 800 gallons a year, that should provide a saving of $728 — more so if forecasts for a warmer winter than last year prove accurate.
— TOM INCANTALUPO
More than 2,000 well-paying union jobs were wiped out by the A&P bankruptcy, said economist Gregory DeFreitas, head of Hofstra University’s labor-studies program. If they are not replaced, “that is going to be a drag on the economy,” he said. One solution, he believes, is faster approval for construction projects, especially transit-oriented housing, which would create jobs and attract and retain young people.
Another worrisome headwind is the continuing loss of government jobs. Between November 2010 and November of this year, the sector shrank by 20,300 jobs. “We probably won’t see a turnaround there for a while,” DeFreitas said.
The good news is that increased private sector hiring points to stronger wage growth in 2016, said Gad Levanon, managing director of macroeconomics and labor markets at the Conference Board, a Manhattan-based business research group. He also said large numbers of retiring Baby Boomers will have to be replaced. — CARRIE MASON-DRAFFEN
Jobs in the health care and social assistance sector increased 5.3 percent on Long Island to 217,300 in November compared to a year ago, and that growth trend should continue.
Arthur Banks, managing partner at Hicksville-based Horizon Healthcare Staffing, said he expects jobs to increase “across the whole spectrum” of healthcare as Baby Boomers age and Obamacare phases in stiffer penalties for people who do not have health insurance.
The North Shore-LIJ Health System, soon to be renamed Northwell Health, reported having more than 31,000 employees in Nassau and Suffolk counties as of November.
A spokesman said the health system, the state’s largest private employer with more than 61,000 employees overall, had no projections for 2016, but that the organization has been hiring, on average, about 150 new employees per week. — Ken Schachter