From Charles Steindel at the Steve Sweeny Center for Public Policy at Rowan:
New Jersey’s economy did well in 2022, setting new highs in jobs, output, and income, generally matching or exceeding growth in neighboring states, and keeping pace with the national expansion. However, the widespread expectation is that the national economy could fall into a recession in the near future, reflecting the interest rate hikes the Federal Reserve has generated to bring down price inflation. In this environment New Jersey’s economy will face headwinds. If, as is widely expected, any recession would be relatively modest and short, New Jersey should start to recover in 2024. Nevertheless, ongoing corrections in the equity and housing markets will weigh upon many New Jersey residents and impact state revenues for some time.
Preliminary numbers show that the number of jobs in New Jersey hit a new record high in August 2022, and kept growing through the end of the year (the job figures for 2022 are still subject to the regular annual “benchmark” revision, which will be released in March. It is now anticipated that the current numbers are underestimates). The recovery from the pandemic collapse has been remarkable: New Jersey saw a drop in jobs in early 2020 that was notably larger than the national average, but has since experienced larger than average gains. The state’s job count grew 3.6% from December 2021 to December 2022, higher than the national gain of 3.0%, as well as New York’s 3.1%, and a touch better than Pennsylvania’s 3.5%.
The data on state output and income reinforce the good news we have received on the labor front. The first three quarters of 2022 saw New Jersey set new records for the dollar value of state Gross Domestic Product (GDP), and the first and third quarters set new records for “real” (inflation-adjusted) GDP. The dollar value of GDP is of particular importance since its long-term growth is, to a rough approximation, a plausible proxy for the growth of the revenue base for both state and local governments.
New Jersey will not be immune from a recession. At the least, the state’s huge logistics sector will be hurt by a softening in demand for goods shipped to the Port of New York and New Jersey. New York City has experienced a subpar recovery, due to ongoing softness in the financial and tourism sectors, which are vulnerable to a national downturn. Weakness in the Big Apple will have some spillovers to New Jersey, in areas such as retail sales and real estate. As mentioned, there is also some potential for a ramp-up in foreclosures. Given a mild recession we expect a modest loss of jobs in 2023, and an uptick in the unemployment rate.
The recovery from the recession is also expected to be fairly sluggish: while the Fed might bring interest rates down substantively, given the current partisan gridlock in D.C., along with concerns over the level of federal debt, there is little likelihood of much cyclical relief on the tax or spending fronts. It was a hopeful sign that numbers of major economic indicators in New Jersey actually grew better than the national average, but in looking ahead it would be better to assume that the longer-term trend of slower growth here continues.
In this environment, not only will income and spending growth slow, but so will real estate transactions (in number and dollar values), as well as capital gains realizations. All these factors will work to hold down revenues. A return to growth in 2024 will ease the situation, but as we saw in the last decade, it will take some time before revenues again grow robustly.