Opinion: New Jersey's Economic Recovery, a Late Spring Status Report
As the country's recovery stutters, is the Garden State in for an equally bumpy ride?
It's easy to be disheartened by New Jersey's flagging economy -- particularly as the national picture grows more gloomy. True, there have been some signs of life in the Garden State, such as a slight surge in job creation in the first quarter of this year. That same uptick was observed on the national front, but -- with the latest round of job figures -- has turned out to be something of a disappointment. That raises several questions. How will New Jersey fare in the second quarter? How likely is it that the state will follow the nation into a slight stall? Finally, is there any "local" information -- pertaining solely to New Jersey's business climate -- that can help create a more accurate assessment of the Garden State's recovery.
The place to start is with the national situation.
The payroll employment report for May 2011, released by the U.S. Bureau of Labor Statistics on June 3, suggests that the national economy has begun to lose steam for a second time in the current recovery. The three months (February, March, and April of 2011) preceding the latest report registered the strongest private-sector employment gains -- an average monthly increase of 244,000 jobs -- since the recovery began in June 2009. So it increasingly looked as if we had finally achieved employment liftoff. Optimism had been growing that 2011 would finally be the breakout-employment year.
However, the latest job report has proved to be somewhat sobering. Growth slipped to a disappointing 83,000 jobs in May 2011, well below expectations. This was the lowest private-sector monthly increase since June 2010, almost a year ago. At the same time, government employment declined by 29,000 jobs in May 2011, leading to an overall employment increase of just 54,000 jobs, the lowest since September 2010. When taken in the context of other faltering indicators in both the United States and globally, fears of a stalling economy have begun to emerge. While a serious breakdown is not anticipated, a prolonged and subdued recovery may ensue.
This is eerily similar to the pattern of one year earlier, when growing optimism was ultimately tempered by disappointing statistics. After declining for 25 consecutive months (January 2008 to February 2010), strong and accelerating private-sector employment gains were recorded in March (+144,000 jobs) and April (+229,000 jobs) of 2010. This led to heightened expectations for finally achieving sustained high levels of job creation. But 2010 growth then faltered in May (+43,000 jobs) and June (+65,000 jobs), a slowdown linked to unique factors such as the European sovereign debt crisis and the Gulf oil spill. Fears arose that the Great Recession and the nascent recovery would be followed by the “Great Stall.”
Fortunately, these shocks proved to be temporary, and growth picked up during the balance of the year, but only to modest levels. Thus, the 2010 slowdown turned out to be the "Great Swoon" rather than the Great Stall, with the year as a whole characterized as "less than great employment recovery." The final private-sector employment gain for 2010 was just under 1.2 million jobs, a modest increase constrained by the twin shocks earlier in the year. Nonetheless, 2010 was a major rebound from 2009 (a record loss of 5 million jobs), the worst employment-loss year since payroll statistics were first compiled in 1939.
Following the 1.2 million private-sector job increase of 2010, the first four months of 2011 (through April) led again to renewed optimism. The nation added 825,000 private-sector jobs in the first third of 2011, equal to almost 70 percent of private-sector job growth achieved during all of 2010. If that pace were to continue, 2011 would see an annual employment increase of close to 2.5 million jobs. Thus, the potential three-year job trend (-5 million in 2009, +1.2 million in 2010, and +2.5 million in 2011 [based on the first four months]) would certainly suggest that the employment recovery had gained substantial and growing momentum. But the May 2011 "sputtering" has put this optimistic trajectory into question, although employment growth in 2011 (+908,000 jobs through May) will easily surpass that of 2010 (+1.2 million jobs).
Still, economic uncertainty has again reared its ugly head, with May’s jobs figures seemingly reinforcing earlier statistics suggesting that the economy has shown renewed weakness this spring. In late May, the Bureau of Economic Analysis reported that Gross Domestic Product (GDP), the total output of the U.S. economy, grew by an annualized rate of 1.8 percent in the first quarter of 2011, the same as its preliminary estimate, which disappointed many observers who anticipated an upward revision.
That weak 1.8 percent reading was down from 3.1 percent in the fourth quarter of 2010. Forecasters have quickly been revising downward their GDP estimates for the second quarter and for all of 2011. In addition, recent less-than-vibrant measures of housing production, housing prices, consumer confidence, factory output, and retail performance have raised questions about the strength of the economy’s basic underpinnings.
As was the case in 2010, it is possible that the 2011 slowdown may be short-lived, again the result of unique temporal shocks creating bumps in the recovery road. Higher oil prices, harsh weather-related events, and the March 2011 tragedy in Japan (resulting in supply-chain disruptions) have all contributed to the soft patch. Moreover, there is an additional potential problem created by the unresolved European debt crisis, another repeat of spring 2010. If this array of 2011’s shocks begins to fade -- following the pattern of 2010’s shocks -- then “Great Swoon 2” may characterize mid-2011, with the economy picking up in the second half of the year. Nonetheless, the emergence of a second wave of shocks, as well as the direction and volatility in the underlying data, has placed uncertainty on the front burner.
This national uncertainty is now overarching New Jersey’s economic recovery. The state has followed the general national pattern of employment growth, with some lag. New Jersey was hemorrhaging employment in 2009, losing 117,700 private-sector jobs. Stabilization was then achieved in 2010, when the state gained 5,200 jobs. This transformation represented a major turnaround paralleling the nation. But then, in the first four months of 20l1 alone, New Jersey gained 19,800 private-sector jobs, nearly quadruple that of all of 2010. Thus, the state has been moving in the right direction. The key question is how the second wave of national shocks will flow back into the Garden State in the short term, and whether they will prove temporary or longer lasting.
This national slowdown comes at a time when there has been a significant change in the perception of the New Jersey economy and business climate by the state’s business leaders. In late May, the results of the sixth C-Suite Survey, conducted by the Bloustein School in partnership with Cushman & Wakefield and the New Jersey Business & Industry Association, were released. This is a survey of CEOs, COOs, and CFOs of key New Jersey businesses.
C-Suite 1 was conducted just before the onset of the Great Recession in late 2007. The next four surveys took place during the recession and its immediate aftermath. C-Suite 6, just completed, is the first survey set in America’s new post-recession economic landscape. It revealed significant improvement in the perception of the New Jersey economy and New Jersey as a place for doing business. Despite highly negative ratings of the state’s tax climate and regulatory environment, which were evident through all six surveys, there was a threshold improvement in the respondents’ evaluation of the responsiveness of state government to the needs of the business community.
Consequently, C-Suite 6 benchmarked major positive attitudinal changes by New Jersey business leaders just at a time when the state’s economy has demonstrated forward progress. Will this confluence of positive events be jeopardized by a national economic recovery that twice has appeared particularly vulnerable to slowdowns spawned by unique short-term shocks and special factors?