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Uncertainty poses main risk to strong LI economy in 2019

Growth could accelerate in the new year, but only if consumer and business uncertainty clears over trade, taxes, interest rates and Washington politics, experts said.

Quality inspector Bob Buhler looks over engine mounts

Quality inspector Bob Buhler looks over engine mounts for a KC-135 at GSE Dynamics in Hauppauge. Defense and aerospace firms on LI saw increases in 2018. Photo Credit: Barry Sloan

The strong Long Island economy is at risk from uncertainty, local economists predicted.

Growth could accelerate in the new year, but only if consumer and business uncertainty clears over trade, taxes, interest rates and Washington politics, they said.

The Island’s gross domestic product, the sum of all goods and services produced here, increased about 2 percent in 2018, the experts said.

For comparison, Nassau County’s economy grew 0.9 percent annually between 2012 and 2015, according to first-ever GDP data released this month by the federal Bureau of Economic Analysis. Suffolk’s economy expanded 0.7 percent per year in the same period.

The bureau estimated Nassau’s GDP was $84.4 billion in 2015 and Suffolk's was $78.5 billion.

In the past year, unemployment hit a record low and the number of people employed was at a record high. Consumers are confident. Production lines are working overtime to meet larger orders.

“Long Island’s economy is very strong but there is a dark cloud of uncertainty hovering over it as we enter the new year,” said John A. Rizzo, chief economist for the Long Island Association business group and a Stony Brook University professor. “This uncertainty could have serious consequences because it causes businesses and consumers to stop investing and spending, and that could lead to a slowdown in the economy.”

He and other experts identified several factors behind the uneasiness: the U.S.-China trade war, further interest rate hikes by the Federal Reserve, disputes between President Donald Trump and congressional Democrats, and potentially lower consumer spending because of the cap on deductions of state and local taxes on federal income tax forms.

“Assuming the uncertainty is resolved, we will have slower growth in the first half of the year then it will pick up,” Rizzo said, forecasting GDP growth of about 2 percent in 2019.

Richard Vogel, dean of Farmingdale State College’s business school, predicted growth of 1 to 2 percent next year.

“There’s still a lot of uncertainty about where things are going,” he said, noting some Long Islanders will likely see smaller federal tax refunds because of the new $10,000 limit on deductions for state and local taxes.

 — James T. Madore

Pharmaceuticals

Makers of generic drugs, vitamins and nutraceuticals are a bright spot in the manufacturing sector, adding nearly 1,200 jobs in the last six years. They employ about 10,500 people on the Island.

Two of the biggest players, Amneal Pharmaceuticals and Contract Pharmacal, are expanding.

Amneal will add 100,000 square feet to its 495,000-square-foot office and factory in South Yaphank. The company is in the midst of hiring 400 more employees; it had 1,070 a year ago between three buildings in Suffolk County.

“We will be bringing a lot more products in-house” for manufacturing, said Chintu Patel, co-CEO and co-founder of the New Jersey-based company.

Contract, based in Hauppauge, plans to purchase another building as part of a $40 million expansion that will add about 150 workers, bringing its total to 1,513.

"This project is critical to our overall operations," company president Mark Wolf said.

— James T. Madore

Tourism

Tourism revenues on the Island are likely to rise about 3 percent in 2019, said Kristen Jarnagin, CEO and president of Discover Long Island, a nonprofit that promotes tourism here.

"The tourism industry remains vital for Long Island's economic growth," she said. "Last year alone, it generated $722 million in state and local tax revenues and supported nearly 82,000 local jobs."

Spending by travelers on Long Island rose 4 percent in 2017 to a new high of $5.9 billion, according to Oxford, England-based analytics company Tourism Economics.

In reference to the Ronkonkoma Convention Center, a 17,500-seat venue that is part of a $1.1 billion development plan proposed this year, Jarnigin said: "If it's approved, it would help us attract more business travelers. For the tourism industry on Long Island it would be a total game changer."

— Daysi Calavia-Robertson

Health care

Employment in Long Island’s health care industry climbed 2.2 percent in October from a year earlier to 230,000, according to state data. Employment in the industry is expected to keep rising in 2019 as the population ages and large health systems continue to expand ambulatory services in Nassau and Suffolk counties.

New Hyde Park-based Northwell Health, the largest private employer in the state, with about 68,000 employees, expanded by more than 4,500 full-timers this year, spokesman Terry Lynam said. Much of it was driven by the addition of about 100 new outpatient locations throughout the Island and New York City. Northwell has about 700 outpatient facilities, and expects to add another 50 next year, Lynam said.

Manhattan-based Memorial Sloan Kettering, which recently expanded its Commack facility, plans to open its Nassau County location at the Hub in Uniondale in the first half of 2019.

Good Samaritan Hospital Medical Center in West Islip, which is operated by Catholic Health Services of Long Island, plans to open a $14 million cancer center by mid-2019. 

Stony Brook Medicine has started moving into a new 240,000-square-foot cancer center located on Stony Brook University’s East Campus. The $194 million construction project is part of a larger $450 million expansion that includes a children’s hospital. Manhattan-based NYU Langone and Mount Sinai Health System are also expanding on Long Island.

— David Reich-Hale

Banks, credit unions

Smaller Long Island-based banks are becoming less confident that banking regulations will be relaxed.

Chief executives had hoped a friendlier compliance environment would follow the election of Trump in 2016. But now that Democrats will take control of the House of Representatives, “I’m not so sure,” said Douglas C. Manditch, chairman and chief executive of Islandia-based Empire National Bank.

Manditch said Empire spends about 12 percent of its revenue on compliance. He said that percentage could increase, because “we are close to $1 billion in assets, and then regulations increase with it.”

Banks are also expanding into New York’s outer boroughs.

First National Bank of Long Island expects to build out a network of about 12 branches in Brooklyn over the next few years. It has two branches there, and a third one will open in early 2019.

An abundance of small- and middle-market businesses make Brooklyn enticing, said Michael N. Vittorio, president and CEO.

FNB also has six branches in Queens.

Bethpage Federal Credit Union, the largest credit union based on Long Island, with $8.2 billion in assets, is close to finalizing its first branch location in Queens. It already has an office in Manhattan.

“We are looking for expansion opportunities throughout the five boroughs and Westchester,” said Linda Armyn, senior vice president corporate affairs at Bethpage.

— David Reich-Hale

Commercial real estate

Industrial space is likely to command high prices amid increased demand, brokers said.

“I see both sale and rental rates continuing to increase, but maybe at a more modest pace than it has,” said Phil Heilpern, senior vice president of CBRE Long Island.

Heilpern said it’s possible that older, harder-to-rent office buildings may be converted into industrial spaces.

David Pennetta, managing broker of Cushman & Wakefield’s Long Island office, anticipates seeing “a pretty dramatic change in the office market,” he said.  

While rents have been “pretty flat” until recently, Pennetta said, limited availability for larger, more amenity-rich offices may help drive prices higher.

Scott Berfas with Newmark Knight Frank said factors like Amazon’s decision to open a headquarters in Long Island City, Queens, and development plans for the Nassau Hub may boost prices.

“These are all positive indicators, but a lot is still to be determined,” he said.

— Victor Ocasio

Jobs

The strong labor market will continue to pressure employers on Long Island and nationwide to raise wages in 2019, some economists said. “I would expect wages to accelerate, perhaps rising by 3 percent or more overall,” said economist Rizzo.

Gad Levanon, North America chief economist for The Conference Board, a Manhattan business-research group, sees similar wage increases nationally. “People waited for a long time for wage growth to accelerate, and it is finally happening,” Levanon said. Some sectors will fare better than others, Rizzo said: “Wage growth will be stronger in industries where demand is high and the ability to pass on labor costs in higher prices to consumers is greater.” 

Manufacturing is an example. “You need that refrigerator, but you can forgo dinners out,” he said. “So it is easier to increase prices for the refrigerator in response to rising labor costs than to charge more for that steak.”

— Carrie Mason-Draffen 

Real estate

The strong growth in Long Island home prices over the last few years is likely to weaken next year, real estate brokers and analysts said.

The local housing market could feel the impact of lower home prices in New York City and of the new $10,000 cap on deductions for state and local taxes, said Gary Baumann, an associate broker with Douglas Elliman in Dix Hills and Plainview.

In addition, he said, Nassau County’s massive property tax reassessment could hurt those homeowners whose taxes will go up as a result.

With demand softening in the luxury market, high-end homes “are taking longer to sell,” Baumann said.

However, he said, continued strong demand — especially for lower and midpriced homes within commuting distance of New York City — is likely to counteract those trends in certain areas. And the expected influx of new tech jobs in the city also could give the Island’s housing market a boost, he said. 

“Those things are going to have to all work their way out,” Baumann said.

Next year, Long Island is likely to see “a lower level of sales, somewhat more inventory and little to no price growth,” said Jonathan Miller, chief executive of Manhattan-based appraisal company Miller Samuel.

A dramatic drop in prices is unlikely, though, he said, because of the limited supply of houses for sale.

 — Maura McDermott

Retail

The impact of the so-called “retail apocalypse” that shuttered an unprecedented number of stores in the United States in recent years wasn’t as deep on Long Island.

“It hit Long Island, it hit everywhere . . . But now you’re starting to see that space be absorbed,” said Gregg Carlin, a retail broker in the Melville office of CBRE, a Los Angeles-based real estate firm.

Large-chain retailers have closed stores as a result of online shopping’s ever-growing dent in store foot traffic, he said.

That means retailers will continue to open smaller and fewer stores. Also, they will move into vacant spaces on prominent roads where rent might be more affordable than it had been in the past, Carlin said.

The shift to smaller stores is a boon for Long Island’s revitalized downtown districts with rows of independent shops, such as those in Huntington, Bay Shore, Farmingdale and Patchogue, he said.

Also, malls and shopping centers will continue to court replacement businesses, such as gyms, restaurants, escape rooms and medical offices, which aren’t susceptible to online competition, he said.

Retailers that are relatively new to Long Island, such as arts and crafts chain Hobby Lobby and flooring seller Floor & Décor, will continue to expand here, said Joshua Weinkranz, president of the Northern region for Kimco Realty Corp., which is based in New Hyde Park. 

— Tory N. Parrish

Defense and aerospace

Aerospace and defense companies on Long Island saw an uptick in 2018 as increased federal expenditures filtered down to subcontractors.

“Generally speaking, [President Donald] Trump has increased the defense budget,” said Robert Botticelli, chairman and executive director of ADDAPT, which advocates for the Long Island defense industry. “I think the next five to 10 years will see increases in aerospace and defense in general.”

But executives said that a competitive labor market is limiting expansion.

“Manufacturing companies in general are wanting to hire,” said Anne D. Shybunko-Moore, president of GSE Dynamics Inc. in Hauppauge. “There are a lot of job openings and we’re trying to fill them.” GSE’s head count has risen to 70 from 50 a few years ago.

In late December, the website of defense contractor Telephonics Corp., a unit of Manhattan-based Griffon Corp., listed 18 job openings in Huntington and Farmingdale.

— Ken Schachter

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