Twenty-eight months into the current employment expansion, New Jersey's private sector economy is limping through one of the weakest periods of job growth in more than half a century, an analysis of state employment data shows.

Since hitting a cyclical low in March 2003, private-sector employment in New Jersey has grown by only 69,000 new jobs. That works out to an average annual gain of just 29,600 jobs, less than half of the annual growth of nearly 67,000 private sector jobs in the 1990s expansion. This is also well below the state's long-term historical average of about 40,000 per year.

As if to underscore this problem, private sector employment declined by 3,700 jobs in July, bringing the State's total private job growth so far this year to just 21,200.

New Jersey's inability to generate significant numbers of new private-sector jobs is at odds with the perception that the state economy is doing just fine, at least as gauged by the State's unemployment rate. In July, the jobless rate was 4.1 percent in July, up two tenths of a percentage point from a four-year low of 3.9 percent in May. The state's July unemployment rate was below the national average of 5 percent.

Regional economists say a far more meaningful gauge of the health of the state economy is the rate at which new private-sector jobs are being created. From this vantage point, the performance of the New Jersey economy not only leaves a lot to be desired, but also trails the nation.

The national economy created more than 2 million private-sector jobs last year, a nearly 2 percent increase, making 2004 a breakout year for the United States as a whole. By contrast, New Jersey created only 31,300 private-sector jobs in 2004, a gain of barely 1 percent. (See Chart 1) This placed the Garden State 41st in the nation in its rate of employment growth.

Commenting on this data, Rutgers University economists James Hughes and Joe Seneca noted in their July 2005 Rutgers Regional Report that New Jersey's 2002-2005 expansion "has demonstrated unprecedented weakness." And they urged the state to put a renewed focus on policies that would encourage private-sector job growth.

"The state is no longer one of the leaders in employment growth; instead, it lags the nation," Hughes and Seneca said.

Even when compared to its historical employment growth trend, New Jersey is performing poorly. Since World War II, employment in New Jersey has grown by an average of about 40,000 new jobs a year, an average that includes both up years and down years.

"The bottom line is that the current expansion has had….the weakest private-sector employment growth of any expansion in the post-World War II era," Hughes and Seneca said in their report.

The current employment weakness is even more pronounced when compared to the two previous expansions. Between 1993 and 2000, New Jersey's private sector employers added an average of 66,600 new jobs every year. (The average annual gain in the 1980s, an exceptional period of growth, was closer to 100,000.)

Underlying the state's weak employment growth are a number of factors, among them: 1) a struggling manufacturing sector that has lost more than 92,000 jobs over the last four and a half years, 2) weak employment growth in the normally robust service industries, and 3) exceptionally weak growth in high-paying service industries that accounted for much of the state's growth in the 1990s.

Manufacturing

The biggest factor behind New Jersey's disappointing job-growth performance in recent years has been an enormous slide in manufacturing jobs. Over the last four and a half years, nearly a quarter of all manufacturing jobs in this state have disappeared, offsetting employment gains in other sectors of the economy.

Specifically, between December 2000 (the start of the recession) and July 2005, total manufacturing employment declined by 92,100 jobs, falling to 329,900 from 422,000, a 22 percent decrease. (See Chart 2)

These losses were particularly acute in 2001, when 40,000 positions vanished. In the two years that followed, the losses moderated, but were still significant, with a decline of 23,600 jobs in 2002 and 14,000 in 2003.

A reprieve of sorts followed in 2004 with a loss of only 7,300 manufacturing jobs, and while there were hopes that this reprieve would continue into 2005, the picture so far has been mixed. The first six months of 2005 brought heightened losses, with 7,100 jobs disappearing between January and July. However, July brought the first increase of the year, a gain of 700 jobs.

New Jersey's manufacturing employment losses have been nearly universal, affecting every major industry group except pharmaceuticals, which eked out a gain of 1,600 jobs over the period, up 4 percent. But all other major groups sustained losses of between 48 percent (apparel) and 8 percent (chemicals). (See Table 1)

The driving force behind these losses is the exceptionally high cost of doing business in New Jersey. High costs make it very difficult for New Jersey manufacturers to compete with low-cost competitors in other countries and states. Some of those costs include employee health coverage, energy, taxation and environmental compliance.

Service Sector

But manufacturing alone is not to blame for New Jersey's weak employment picture. In the private sector, poorly performing service industries have also contributed to sub-par job growth.

The service sector was the workhorse of New Jersey's robust 1992-2000 economic expansion, powering the bulk of the employment gains in that period. The 1990s expansion produced an average of 66,600 private service jobs annually. Just as importantly, the bulk of those service-sector jobs were in high-paying positions in financial, business and professional services.

But in the current expansion, the service sector is a powerhouse no longer-not in the number of jobs it has produced nor in the quality of those jobs.

In 2003 and 2004, the state's private service-producing industries created a total of 48,200 new jobs. (The main service industries are financial, business and professional, education and health, and leisure and hospitality.) This produced an annual gain of 24,100, a mere one third of the sector's average annual gain of 67,700 in the 1990s.

Just as worrisome in the current expansion are the types of new service jobs being created. In an article entitled: "Hamburger Flippers Come on Strong," Hughes and Seneca point out that most of the gains in the service sector are coming from lower-paying jobs in retail, education and health, and leisure and hospitality. Far fewer jobs are being created in the high-paying financial and business and professional services industries-the very same industries that provided the bulk of new services jobs in the 1990s. (See Table 2)

The economists point out that "lagging growth in these high-paying sectors has been particularly hard on the state's office markets." Among other things, this means that vacancy rates in Class A office buildings are still hovering around 25%, which is, according to Hughes and Seneca, one of the highest rates in the country.

They conclude in another report that while Corporate America might not be abandoning New Jersey, "it appears to be concentrating its expansion outside of the State's borders." They say that this "may well be signaling a loss of economic competitiveness" for New Jersey.

Conclusion

The current rate of private-sector job growth in New Jersey is one of the slowest in the country. A big loss of manufacturing jobs and a painfully slow recovery in a number of the state's higher-paying service sectors combined to place New Jersey 41st in the nation in its rate of private-sector employment growth last year.

In the first seven months of this year, New Jersey created only 21,200 private-sector jobs, which barely puts it on track to match the postwar employment-growth average of about 40,000 jobs a year.

The current slow rate of job growth is in sharp contrast to the two previous expansion cycles. The 1990s produced nearly 67,000 new private sector jobs annually, and the 1980s, closer to 100,000.

Two of New Jersey's leading regional economists, Hughes and Seneca of Rutgers University, warn that the current weak performance may signal "a loss of economic competitiveness in New Jersey" as companies look to other states to expand their operations.

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