At midyear, NH economy is strong, but concerns persist

If economist Brian Gottlob were grading on a curve comparing New Hampshire to other states, he’d give the state’s economy at midyear a solid A.

“We’ve really faced the headwinds better than most states,” he said. “We really haven’t been deterred, given all the things that are happening nationally.”

That said, when Gottlob — who’s director of the NH Economic and Labor Market Information Bureau — looks only at conditions within the state, his midterm grade for the economy goes down to a B+.

“I think it’s good, but it’s clear things have started to slow,” he said.

A midyear assessment of the state’s economy that covers a breadth of sectors — healthcare, hospitality, real estate and manufacturing — shows general positivity, especially in how the state has rebounded from the shut-in days of the Covid-19 pandemic.

But … workforce issues, housing availability and affordability, inflation and the spillover effects of national and international concerns add a chorus of caution to the songs of praise as the state’s economy moves through the second half of 2023.

“We’re back to normal,” said Tom Boucher, CEO of Great NH Restaurants, which operates several restaurants throughout the Granite State.

“Our experience of the last several months indicates that the supply chain and labor availability issues that most businesses faced during this period are now fading,” said Bill Higgins, CEO of Albany International in Rochester, manufacturer of advanced textiles and materials including composites used in the aerospace industry.

“I think New Hampshire is faring much better than many other sectors of our country. People still want to come to New Hampshire,” said Ben Cushing, president of the NH Association of Realtors.

“The state of tourism in New Hampshire looks sunny and bright. We are seeing travelers coming from near and far returning,” said Lori Harnois, director of the state Travel and Tourism Development Bureau.

There’s a lot going for New Hampshire’s economy right now, according to Gottlob, director of the NH Economic Labor and Market Information Bureau.

In assessing the state’s economic health at any given time, Gottlob looks at a variety of data: unemployment claims, job openings, layoffs, interest rates, bank deposits, housing starts, housing prices, business openings, just to name a few.

He said that a sophisticated and talented workforce, areas of the state that are highly desirable to live, and a desirable business-friendly attitude among state officials work in the state’s favor.

“I’m still optimistic that we as a nation can avoid a recession this year. We’ve shown we’ve had solid job growth for the most part this year. We had solid job growth last year. We have extremely low unemployment,” said Gottlob, who, prior to accepting the state position in late 2019 was principal of PolEcon Research, an economic consulting firm located in Dover.

But there’s an undertone of pessimism, as expressed by respondents to a poll by the University of New Hampshire Survey Center.

Released in May for the Business & Industry Association, respondents showed some concern about the U.S. economy as a whole but were more optimistic about the future here in the Granite State.

According to the survey, 48 percent of respondents believe business conditions will worsen across the country, while 27 percent of those same respondents expect a worsening business climate here in New Hampshire.

Real estate

The good news for residential sellers at midyear is that they are still getting top dollar for their homes, according to Cushing, who is also broker and regional manager of the Upper Valley for Four Seasons Sotheby’s International Realty. Homeowners here have a lot of value and equity in their homes.

The bad news for buyers is that those still-high prices are fueled by a lack of affordable housing inventory, noted Cushing.

“We’re still seeing a flurry of activity,” said Cushing. “When a property comes on the market, as long as it’s listed relatively well, we’re still seeing multiple offers, and we’re still seeing property sell for more than asking.”

There is a slight uptick in supply, according to Cushing. At the time of this interview, he pointed to 1,200 single-family homes and 300 residential condominiums for sale. That, he said, “is a lot more than it was a few months ago when I might have told you we only have about 800 total.” But that’s far short of the 14,000 homes that were for sale back in 2015.

“We’re nowhere near where we need to be. I don’t have a crystal ball. I don’t see us getting back to those numbers for a very long time,” said Cushing.

With the average price of a home in New Hampshire hovering at about the mid-$400,000 range, affordability remains a problem, not so much because of rising interest rates, he noted, but because the market value of homes here remains so high.

“Interest rates are still actually really very good, in the sixes,” he said. “It’s the increase in value of our real estate that has just gone up way more than the interest rates have. And that’s one of the other factors that’s really putting people out of the market.”

Conditions fueled by the Covid-19 pandemic drove people looking for more elbow room to New Hampshire continue to have an effect, not only on the residential real estate market but the commercial/industrial real estate market as well.

Office building vacancies are running relatively high, said David Choate, broker and principal at Colliers International in Portsmouth. Meanwhile, there’s a dearth of industrial/manufacturing availability.

“My observation is that office vacancy is increasing based on the new listings,” said Choate. ”I see industrial continues to be a problem because there’s virtually no space around.”

Work from home — either full time or in a part-time/hybrid arrangement — has meant less of a need for office space.

“Even if they’d have the same workforce, they don’t need as much space because it’s different kinds of space. Not everybody has private offices. It’s maybe more collaborative space, more workstations, small hoteling rooms,” said Choate.

“Hoteling,” as a way to accommodate hybrid workers, is one reason technology services company GreenPages cited in its recent move from a complex of offices in Kittery, Maine, to a more efficient layout at the Pease International Tradeport.

With a hoteling arrangement, workspaces are not permanently assigned to any one employee. Instead, employees reserve these spaces for the days they’ll be in the office, rather than working from home.

Manufacturing

For certain manufacturers, such as Albany International in Rochester, they’ve seen a rebound from some of the pandemicrelated frustrations — supply chain, chief among them.

Albany International has two components. Its machine clothing division produces fabrics and process belts used in the manufacture of paper products. Its Albany Engineered Composites designs and manufactures advanced materials-based engineered components for jet engine and airframe applications, supporting both commercial and military platforms.

“The agile response of our workforce throughout the pandemic helped us achieve outstanding results despite various challenges we, and others, faced,” said Higgins, who announced in March his intent to retire after three years at the helm.

“Our New Hampshire manufacturing operations are benefiting as commercial aviation continues to be quite strong with excellent demand for new commercial aircraft,” he added. “As the exclusive provider of key components for the LEAP aircraft engine, the engine of choice for the best-selling airliners in the world today, our LEAP production operations are positioning for continued growth beyond 2023.”

The LEAP engine is built in Rochester in a joint venture between Albany International and Paris-based Safran Aircraft Engines.

Tourism

Midyear means the arrival of summer and a tourism season that Lori Harnois, state tourism director for the NH Department of Business & Economic Affairs, expects will attract 4.3 million Granite State visitors who will spend up to $3.5 billion.

Visitors from overseas and Canada were stifled during the pandemic and are starting to return along with business travelers.

“That adds to the overall economic impact of tourism to New Hampshire, so we’re feeling very optimistic,” said Harnois.

“We are expecting higher levels of visitation this coming summer. There continues to be pent-up demand amongst travelers, so we are anticipating about a 5 percent increase over last summer in regards to the spending.”

Harnois said workforce availability is the sector’s biggest challenge.

“During the pandemic, our industry was hit the hardest. Many of those workers had to turn to different jobs. So we’ve had to encourage them back to the tourism industry.

“More and more tourism businesses are providing wages that are higher, and they’re competing with other sectors, and they’re offering other incentives,” she added. “So they’re seeing the workforce come back, but that continues to be a challenge for the industry.”

Hospitality

For the first time in at least two years, Tom Boucher’s Bedford-based Great NH Restaurants is seeing sales and revenue increases, owing to a return to full normalcy post-pandemic.

“I’ll report to you that for the first four months of this year, we’re up 10 percent over ‘22. It’s been a long time coming,” said Boucher, whose eateries include T-Bones, CJ’s, Cactus Jack’s and Copper Door restaurants, as well as T-Bones Meats, Sweets & Catering.

“For two years, people didn’t and/or couldn’t spend the money that they would normally do in leisure and fun,” he added. “And so they’re ready and they’re back.”

His biggest challenge is the vicious cycle of inflation: higher-priced foodstuffs, higher wages and what that does to his menu prices.

Being more competitive with wages and benefits are components cited by Boucher when he talks about the hospitality sector meeting the workforce challenge headlong, yet it comes at a cost.

“There’s no $15-an-hour employee working in restaurants today,” said Boucher.

“And if they are, they’re going to go find somebody who’s going to pay him $20 or more. That’s great, except as a restaurant company, you have to be able to afford that 30 percent increase. So what do you think happens? The prices go up. It’s this circle.”

In a nod to the importance it places on its workforce managers, Great NH Restaurants closes all its facilities for seven holidays each year, on top of paid three weeks of vacation.

“Our model is, let’s take care of our employees first so that they feel good about where they’re working,” said Boucher.

Healthcare

In a rural state such as New Hampshire, healthcare access is sometimes a matter of hours as opposed to mere miles, according to Joanne Conroy, CEO and president of Dartmouth Health.

And offering both the access and the services in a cost-effective way, against the providers’ needs of workforce, payroll, transportation and housing, is a challenge.

“Seventy percent of the hospitals last year were in the red, so we’re not alone,” said Conroy. “Although, in rural America the challenges are a little bit more difficult to navigate, and especially in New England, which has not bounced back like other areas of the country post-Covid. And make no mistake, the provider relief funds were huge to allow our hospitals and our rural hospitals to recover.”

However, she added, “post recovery, these are the challenges that we’re facing, and we’re facing them all at once.

Workforce shortage, which affects all of our institutions. And then if you can find the workforce, the costs are escalating either because you’re paying premium labor and that means people to work overtime where you pay extra for them to do that, and/or contract labor, which are what we call traveling nurses and technicians that often make three times what the average technician or nurse would make.”

Conroy made her observations about the current state of Dartmouth Health’s role in healthcare during a roundtable discussion in May with two other leaders of rural healthcare institutions: Andrew Mueller, CEO of MaineHealth, and Sunil Eappen, CEO and president of the UVM Health Network.

Inflationary pressures are difficult, even for hospitals, according to Conroy, because of the way they affect not only the institutions but their employees as well.

“It costs them more to feed their families and to drive an hour an hour and 15 minutes to our facility to work. All of those pressures are coming to roost at once,” she said. “So I like to say healthcare is a rough business right now, but it’s really rough in rural America where we don’t have public transportation, and we don’t have adequate housing, believe it or not, to actually get people to actually come and settle and create that stickiness so they’ll stay in our communities.”

The future

While things are looking strong economically, there are concerns for the longer term. For Gottlob, lowering housing costs by increasing housing supply should be the state’s No. 1 priority.

“We’re the belle of the ball in the Northeast. We’re kind of the beacon, and that keeps a lot of people from moving to the South and to the West,” said Gottlob. “We tend to rely on movement into the state to really help grow our labor force. We had a good couple of years, but we’re really running up against it in our ability to accommodate that.”

The state also is home to a lot of one-of-a-kind innovation, Gottlob said, pointing to the Advanced Regenerative Manufacturing Institute in Manchester’s Millyard.

Such initiatives, along with the state’s tax structure, attract individuals and businesses to New Hampshire.

But that attraction, according to Gottlob, dims if there isn’t housing and, he added, good public education opportunities.

“To have that innovation, you need the infrastructure to support it,” said Gottlob. “That means public policies, but it also means educational institutions, support for workforce development. Those are the challenges that I think we face, and we’re not there yet in all of them.”