The windows on the 21st floor of the PNC Plaza tower in downtown Raleigh offer a sight you can few other places in the state: cranes. “They’re not even rusty,” says Stuart Hoffman, chief economist for PNC Financial Services Group. “That’s a good sign.”
Hoffman, who joined PNC in 1980 after six years with the Federal Reserve Bank of Atlanta, was in Raleigh last week for his first visit since Pittsburgh-based PNC bought RBC Bank in March. Those cranes illustrate why PNC sees this area as a good market for its own continued growth. Business editor Mary Cornatzer talked with Hoffman about his forecast for the area’s job and housing markets, the U.S. economy, and where gas prices might be headed. Here’s an edited version of his outlook:
On the Triangle job market: It has been outperforming the U.S. job market the last couple of years – that’s not saying much. The U.S. job market is not stuck in neutral but it’s been in low gear. … We think U.S. job growth will be a little shy of 1-1/2 percent (next year). Raleigh, Durham will do a little better than 1-1/2 percent. Maybe not 2 percent, but that will be a little better than Charlotte does.
On housing: You never had the housing boom here. Back in the good old days, house prices in Raleigh and Durham were going up 4 to 6 percent a year, while in other places it was double that, and in some places it was quadruple that. Then, of course, when the crash came, prices here fell by about 3 or 4 percent for a couple of years, not 10, or 15 or 20. … This year, we think we’ll see a turnup finally in prices in Durham. We think by the end of the year, you’ll see prices in Raleigh stabilized. So we think we’re basically at the turning point for house prices in this market, and we’re definitely past the turning point for sales. … That’s not to say there aren’t foreclosure issues and short sales, and every house on every street is its own story, but we think generally that the housing market has started to add to economic growth nationally. … Now it’s so small that even a positive contribution isn’t big enough to offset other fiscal issues or concerns about Europe or the slowdown in China. But it is a small positive, and you definitely see it here in this region.
On commercial lending: It’s slower. Apartments are doing extremely well; that’s a function of demographic trends. … But things like shopping centers, retail have barely improved. Not so much in the way of construction, but some improvement in occupancy. … In industrial, you see a lot going on if there’s an energy relation to it. But if you’re talking about manufacturing plants or something else, not much is going on.
On the Triangle’s vulnerability: The demographic here is much more favorable in terms of college educated, in-migration, people moving into the region, and the population base is a more child-bearing formation, so you’ll have more births – internal population growth. The business demographic here is good as well. There are startups. … The business demographic, the people demographic, the housing situation and the job market all seem to be a little ahead. I’m not trying to paint a picture that you’re way out ahead, but you’re a little ahead of the national trends, and you’re a little less vulnerable should the national economy underperform our forecast.
On gas prices: When you take the whole year, gas prices will average higher in 2012 than any other year. Of course, they started going up about two weeks ago. They peaked at Easter and started coming back down, and hit bottom on July 4 thereabouts. Then the Iranian sanctions went into effect, and I would say more than just coincidence, the supply of oil started to become a bit constrained, and gasoline prices floated back up. Now, it’s not at all unusual for gas prices to go up in the summer. … They have a repetitive seasonal pattern. Our best judgment is that they’ll peak toward Labor Day, less than $4 a gallon, and then come down to $3.50 or $3.75 by winter, which will be higher than it was last Christmas, but won’t throw consumers into a tizzy where they can’t afford holiday gifts. … If gas prices keep going up after Labor Day and set new records, and we’re paying $4-plus a gallon in North Carolina, which means they’re paying $5 in California, then that’s a major problem for the U.S. economy. But that’s not what we expect to happen. The threat would be war in the Mideast. But you don’t need to be an economist to know gas prices are going to go up if there’s a problem in the Middle East. … So if we get hit by bad luck by mother nature on top of the stupid things we do by human nature, then my forecast would be way too optimistic.