Business Group Awash in Ripples of Economy

Even though the United States is facing record gas prices, uncertainty about the overblown housing market and devastation caused by Hurricane Katrina, the economy is on course to experience steady growth, according to Anthony M. Santomero, president of the Federal Reserve Bank of Philadelphia.

"It is my view that, at the end of the day, these developments may slow the rate at which the economy will grow for a time, but the expansion is strong enough to withstand them," said the economist, whose bank's mission is to create financial conditions to promote economic growth in eastern Pennsylvania, southern New Jersey and Delaware.

Santomero was guest speaker at this month's Jewish Business Network lunch series, held last week in Center City. Roughly 75 Jewish businessmen and women from the Delaware Valley attended, exchanging business cards and listening to the talk.

Santomero told the audience that he estimates that surging real estate prices across Philadelphia and the nation should stabilize as long-term interest rates eventually increase.

"The speculation present in some markets will eventually dissipate, and price increases should slow," he said.

But if housing prices simply stabilize rather than actually decrease, what does that mean to the individual or family trying to absorb a mortgage?

To a group of journalists after his speech, he used the current situation of his daughter's plight – she's newly married – as an example. "My answer was, 'Stay in the rental market until things settle down.' "

Ramifications of Katrina
Santomero also spoke briefly about the impact of Hurricane Katrina, but since he met with the JBN group only one day after the devastation in Louisiana and Mississippi, he could not offer too many answers as to how the disaster would affect the national economy.

"We all must wait to see the damage that Mother Nature has caused," he began, "but for the moment, I am hopeful that [it] will be neither substantial nor very long-lived."

He did admit that the New Orleans port is a vital part of the U.S. trading network, and that disruption of its flow of goods will cause short-term problems.

"Nonetheless, the U.S. economy has proved surprisingly capable of absorbing such shocks," he noted.

Another major topic he discussed was exorbitant oil costs, climbing from $34 per barrel to $70 per barrel in just two years.

"I think we have all been taken aback by the high cost of filling up our gas tanks this summer," said the executive. "But thus far, the U.S. economy has proven relatively resilient to the rising oil prices, surprising some who recall the price shocks of the 1970s and the severe impact they had on us."

He attributed the recent rise in gas prices partly to disruptions in supply, but more emphatically to globalization.

"Much of this rise was attributable to the increase in the international demand for oil associated with the global economic expansion," said Santomero, who then offered a gloomy forecast that oil prices will "remain elevated for some time."

On the up side, Santomero saw Philadelphia's economy moving in the same economic direction as the rest of the nation.

"Output is up, employment is rising, and local real estate markets are strong," he said, predicting that Philadelphia will "take full advantage of the national expansion that lies ahead."



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