If predicting the economy is akin to forecasting the weather, most prognostications for New Jersey’s economic recovery are cloudy at best.
But one thing is clear: New Jersey has fallen behind its neighboring states of New York, Connecticut, and Pennsylvania and Delaware in reducing unemployment and sparking new economic activity.
New Jersey’s June unemployment rate of 9.6 percent was for the 20th consecutive month again the worst of any state in the Northeast outside of Rhode Island and exceeds the U.S. rate. Analyses undertaken by economists with the Federal Reserve Bank in New York and Philadelphia both show New Jersey trailing its neighboring states in economic growth.
“That really is the important comparison,” said Philip Kirschner, president of the New Jersey Business and Industry Association (NJBIA). “I don’t particularly compare us to Alabama, but I do compare us to our regional competitors — New York, Pennsylvania, Connecticut and Delaware.
“We used to lead all those states in job creation, as recently as eight or ten years ago, and now we have fallen behind,” he said. “And it’s critical to get back on top in this regional economy.”
NJ Consistently Behind
Gov. Chris Christie has identified economic recovery as his administration’s top priority. The administration in April announced a three-pronged strategy to stimulate the economy — the New Jersey Partnership for Action, under the direction of Lt. Gov. Kim Guadagno — that relies on regulatory reform, marketing and targeted financing assistance through the state Economic Development Authority.
The task before the Christie administration is daunting as it attempts to cure an economic malaise that was in place before the Governor took office in January.
The Northeast as a region, including New Jersey, experienced relatively weak growth prior to the 2007-2009 Great Recession. Ironically, economists agree, that worked to the region’s benefit when the recession hit, as the Northeast states were largely spared the double-digit unemployment afflicting former boom states like Nevada, Florida, California and Arizona. In June, the Northeast overall had the lowest regional unemployment rate (8.8 percent) in the nation.
But within the region, New Jersey and Rhode Island have consistently brought up the rear. For at least the past 18 months, New Jersey’s unemployment rate has closely tracked the U.S. unemployment rate and since November 2008 has exceeded those of New York, Connecticut, and Pennsylvania and Delaware. (Among those five, New Jersey was the only one to crack the dreaded double-digit barrier –10 percent — in December 2009.)
In June, New Jersey’s unemployment rate was 9.6 percent, higher than Pennsylvania (9.2 percent,) Connecticut (8.8 percent,) Delaware (8.5 percent) and York (8.2 percent,) as well as the country’s 9.5 percent rate.
Not widely reported upon the release of the June data was a drop of 17,100 New Jerseyans leaving the workforce, following a 3,000 drop between April and May. Economists speculated the decline may largely constitute people who have given up looking for work, along with temporary U.S. Census workers whose assignments terminated.
Economists with the Federal Reserve Bank in New York, whose district encompasses northern New Jersey, and in Philadelphia, whose district includes southern New Jersey, issue periodic “coincident indexes” that track whether regional economic activity is on the rise or decline. The indexes, though similar, employ different methodologies to analyze data such as employment, real earnings, the unemployment rate and average weekly hours worked in manufacturing.
“They show that in New York State and New York City, activity has expanded at a relatively brisk pace since the beginning of the year,” William C. Dudley, president and CEO of the New York Fed, said last week during a quarterly regional economic press briefing. “In contrast, economic conditions in New Jersey remain essentially flat.
“Although activity there is no longer declining,” Dudley added, “New Jersey has yet to establish a sustained recovery.”
Through May, the New York Fed’s analysis showed New Jersey’s economic index had increased at an annual rate of 1 percent, accelerating from a 0.3 percent rate in April. By contrast, the New York State rate grew 7.5 percent during both May and April. New York City, up 9.1 percent in May and 8.5 percent in April, was the only one of the three to show an increase over the past year.
On the bright side, the New York Fed report did show private-sector job gains throughout its region, including northern New Jersey.
“The June job market report for New York and New Jersey showed the recovery is likely to be a bit bumpy,” said Dudley, noting a decline in both New York State and New York City for the month. “In contrast, New Jersey’s private-sector jobs picture improved in June, though a weak public sector there continues to weigh down overall job growth.”
The Federal Reserve Bank of Philadelphia index showed smaller movement among its southern New Jersey, eastern Pennsylvania and Delaware territories, but New Jersey again trailed during May. But New Jersey was the only one of the three up over the previous year.
Trailing the Nation
The Philadelphia office also applies its methodology to track three-month trends for every state in the nation. During May, New Jersey and Vermont were the slowest growing states in the Northeast at a 0.1 to 0.5 percent rate. New York, Connecticut and Delaware were among the fastest growing states in the nation, all in excess of 1 percent; Pennsylvania’s rate was in the 0.6 to 1 percent range.
In a recent presentation to the New Jersey State League of Municipalities, Rutgers University economists Joseph Seneca and James Hughes noted that for the first six months of 2010, the nation added more than 495,000 private sector jobs; New Jersey reported a net loss of 3,000 jobs.
“While the United States had positive growth in the first quarter of 2010, New Jersey did not,” Seneca and Hughes reported. “Net job growth did turn positive in the second quarter, but it appears that the state is clearly trailing the nation in employment recovery.”
Taxes to Blame?
Why the differential in New Jersey’s performance versus its neighboring states?
The Christie administration and many economists blame the state’s tax and regulatory climate as discouraging business retention and new recruitment.
Patrick O’Keefe, director of economic research for the consulting firm J.H. Cohn, has tracked regional economic data since the 1960s and agrees that New Jersey now lags its neighbors.
“New Jersey jobs are recovering more slowly than elsewhere in the U.S., including among its regional neighbors,” O’Keefe said. “But the state’s relative sluggishness preceded the downturn.”
Some of the relative job decline can be traced to competitive shifts globally and nationally, where high-cost competitors, such as New Jersey, are at a disadvantage, he said.
A particular bête noir for the Christie administration and business groups is the state’s tax structure. The administration has cited statistics showing New Jersey levies the highest top personal income and individual capital gains tax rates, and among the highest corporate income and capital gains tax rates in the nation. The state’s local property tax burden, by several measures, is the highest in the nation.
The Governor scored a signature victory in July in winning passage of legislation imposing a 2 percent cap on local property tax increases. Critical to that victory was the support of various business groups, including NJBIA, the New Jersey Chamber of Commerce, the state chapter of the National Federation of Independent Business and the New Jersey Retail Merchants Association.
“Business leaders understand that real, sustainable property tax relief through a [property tax] cap is critical to getting our economy back on track, improving our business climate and getting New Jersey back to work,” Christie said.
Regulations Also a Deterrent
But high taxes are not the only issue. Those same statistics, and other data based on per capita measures, show New York and Connecticut either closely follow or, in some cases, exceed New Jersey in total tax burden. For instance, when all local levies, such as city wage taxes, are included, New York ranks highest in the nation on a per capita basis, followed by New Jersey and Connecticut.
When all state levies are included, U.S. Census Bureau data for 2005 showed Connecticut ranked fourth, New Jersey ninth and New York 11th in the nation in per capita tax burden, all trailing Vermont, Hawaii and Wyoming.
And taxes have plateaued in recent years. A study recently released by the Council on State Taxation (COST), an advisory committee to the national Council of State Chambers of Commerce, showed New Jersey ranked among the bottom 10 states in the business share of state and local tax growth between 2005 and 2009. Nationally, the business share of tax growth averaged 46.7 percent, well above the 32 percent share recorded in New Jersey.
The COST study also found that business taxes in New Jersey amounted to 4.7 percent of the private sector share of the gross state product, equal to the U.S. average and lower than Texas, Arizona or Mississippi.
“In terms of competitiveness, taxes are the most visible and readily quantifiable policy cost,” O’Keefe said. “But the other two issues [rules and administrative efficiency] may ultimately be more significant in deterring firms from locating in New Jersey.”
New Jersey should pursue both regulatory and tax relief, O’Keefe said, but added, “If I’m correct about the significance of New Jersey’s regulatory/administrative cost profile in business decision-making, the potential benefits of tax reductions will be quite limited.”
This is the first of a two-part story; the second part will appear Monday.