Business leaders cautiously optimistic about year to come

Originally published March 21, 2014 in Banker & Tradesman.

Business leaders are fairly optimistic about the economic forecast for the year to come, at least according to live survey results from Santander Bank North America and the Greater Boston Chamber of Commerce’s annual economic outlook breakfast Thursday, March 20.

Roughly two-thirds of participants said they expected some growth for the nation and greater Boston in 2014, with fewer than 15 percent saying they expected no growth and an equal share saying they expect significant growth.

Steve Andrews, senior vice president and director of fixed income at Santander, said there was a lot for Bostonian businesses to feel optimistic about. Despite lukewarm answers to questions about confidence, Andrews said consumers are speaking with their wallets.

“People are spending,” Andrews said, noting increased spending in retail and housing. “I think the confidence is a little bit better than what people would lead you to believe.”

Compared with the last large recession, Andrews said key economic indicators were telling: prime rates on mortgages are 3.25 percent today compared with 20.5 percent in 1981, inflation is a full 13.2 percent lower, unemployment is 4.1 percent lower and 30-year-mortgage rates are 4.25 percent today compared with 18.5 percent in 1981.

The U.S. is 56 months into its recovery, which Andrews said was just over half the time it took the economy to recover after the past three recessions.

“By that yardstick, we still have a couple years to go before we should expect any downturn,” Andrews said.

Instead of looking to the housing industry to lead the economy out of the recession, Andrews said they will instead have to look to energy and innovation as new drivers of growth. Brian Kavoogian, founder and president of Charles River Realty Investors and a panelist at the breakfast, said his company hadn’t stopped growing jobs since the fall of 2009.

Boston is on the “right side” of developing a technology-fueled economy, a trend he said is in turn driving growth in the housing market. Rental prices haven’t quite reached the peak of the early 2000’s he said, but increased demand has been a boon to construction.

“We haven’t built like this since the early 2000s,” Kavoogian said, adding the area was on its way to increasing its housing capacity by 30 percent, many of which was in smaller-sized units.

The added density is spilling out onto the streets and benefiting retail businesses, Kavoogian said.

“You are going to see a lot more people on the streets after 5 p.m. and that’s having a real market impact on retail and other activities,” Kavoogian said.

The albatross for an economy dependent on the higher education industry, however, is the increasing price of tuition, said Greater Boston Chamber of Commerce President Paul Guzzi. Lee Pelton, president of Emerson College and a breakfast panelist, had no silver bullet to offer there.

Pelton said that universities “by nature are highly inefficient.” High labor costs, life-time contracts for some employees and the uniqueness of both the product and the consumer make finding ways to simply cut costs problematic, he said. Pointing to the growing demand for online courses in higher education, Pelton said he was skeptical that massive digitalization would be the panacea everyone is searching for.

Guzzi said he was surprised that business leaders at the breakfast had not chosen health care costs as one of their top three concerns. With policies at the state level in place to curb spiraling costs, Guzzi said there was at least hope that the commonwealth can find a way to cap those costs.

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