New Jersey saw a net increase of only 15,900 private-sector jobs in 2006, less than half of what it added the year before (see chart) and well off the pace of job growth seen in most other states.
In the current employment expansion, nearly four years long, New Jersey has added an average of just 2,031 private-sector jobs per month, compared with 5,320 a month in the 1990s, according to data published by the NJ Department of Labor and Workforce Development.
New Jersey’s rate of job growth has consistently and significantly trailed the nation over the last three years. The addition of 15,900 private-sector jobs in 2006 represented a gain of 0.5 percent. By comparison, private-sector employment grew nationally by an average of 1.4 percent.
Although New Jersey’s 2006 employment numbers are expected to improve when the annual data revision is completed on February 28, State Labor Commissioner David Socolow does not expect any big change. “We don’t expect to be popping champagne corks in February,” the commissioner said recently.
Gary Rose, chief of the Governor’s Office of Economic Growth, recently said the State’s “job growth was unacceptably low” in 2006. Increasing private-sector job growth is high on his office’s 2007 agenda.
In spite of slow job growth, New Jersey’s unemployment rate actually improved in the fourth quarter of 2006. The rate fell to 4.2 percent in December from 4.5 percent the month before and a two-and-a-half-year high of 5.3 percent in August.
NJBIA President Philip Kirschner noted that while New Jersey ended 2006 with a good month of employment growth, this did little to change the State’s overall employment picture.
“We ended the year on a positive note with the creation of 2,400 private-sector jobs in December and a falling unemployment rate. This is good news,” Kirschner said. “But private-sector job growth for all of 2006 was very weak, and that concerns us.”
Looking at some of the most significant job winners and losers in 2006, the education and health services sector enjoyed the largest increase with the addition of 11,400 jobs. The professional and business services sector was another bright spot, adding 9,800 jobs. (See Table)
The leisure and hospitality sector also did well with the addition of 5,900 jobs. Smaller increases were seen in financial activities (1,000) and construction (800). Declines were seen in manufacturing (-10,800), information (-3,000), and trade, transportation, and utilities (-1,200).
Meanwhile, the public sector accounted for a disproportionate share of overall employment growth in 2006. Government added 4,600 jobs, with most of that increase coming in local government. This accounted for 22 percent of the State’s total job growth (public and private) of 20,500 jobs.
The Outlook for 2007
Looking ahead, regional economists and statewide surveys have forecast another year of slow growth that should be neither dramatically better nor dramatically worse than in 2006.
More than half of the employers responding to NJBIA’s 2007 Business Outlook Survey last fall said they expected the State economy to slow in the first half of the year, while only 12 percent said they expected improvement. This was the most downbeat assessment in 16 years. However, most respondents anticipating a slowdown said they thought it would be moderate.
Nancy Mantell, director of the Rutgers Economic Advisory Service, said in her annual forecast that New Jersey job growth will continue to slow. She expects the State to create one-third fewer jobs in 2007 than it did in 2006.
Mantell said economists are also concerned with the quality of new jobs being created in New Jersey. Most new jobs are in the education, health, leisure and hospitality industries. Of the jobs that have been lost, most have been in information technology and manufacturing.
“The jobs that are being created tend to be lower wage; the jobs being lost tend to be higher wage. It is not a good situation,” Mantell said.
Joe Naroff, chief economist with Commerce Bank, said New Jersey is suffering from “20 years of bipartisan budget busting.” In spite of all the money New Jersey has spent on State government, it hasn’t invested enough in its business infrastructure. Now it must compete for jobs with other states that are spending budget surpluses on business attraction.
New Jersey has also been beset with problems specific to certain large industries—like pharmaceuticals, manufacturing and telecommunications—which has led to large-scale layoffs. He said New Jersey will do well this year if it can just match last year’s modest job growth.
If you didn’t like 2006, you’re not going to like 2007,” Naroff said. “I don’t see it (the NJ economy) picking up this year. I have hopes for ’08 but not for ’07.”
Rutgers University economists Jim Hughes and Joseph Seneca say New Jersey is in the middle of the slowest and weakest economic expansion of the post-World War II era and “now faces its most uncertain economic future since the Great Depression.”
Seneca said he believes 2007 will bring continued modest growth in private sector employment, which should get a boost from a pickup in the national economy. However, he said, even the addition of 30,000 new private-sector jobs, twice as many as last year but still below national job-growth rates, would be an “ambitious forecast.”
When measured by personal income growth New Jersey is still doing well. In the 12 months that ended last September, personal income grew by 6.3 percent in New Jersey, close to the national rate of 6.7 percent. New Jersey still enjoys the nation’s highest median household income, and thus has a strong, high-income consumer market. “The challenge is to translate this attractive income profile into a positive economic climate for business (expansion),” Seneca said.
The housing slump has been an economic wild card, with many fearing that a protracted and deepening decline could drag the rest of the economy into a recession. (In New Jersey, the first ten months of the 2006 brought an 18 percent decline in housing starts.) Seneca said recent evidence of “solid employment and income gains” nationally should ease fears that the housing slump will lead to a broader economic debacle.
Economists with the regional Federal Reserve Banks have seen evidence of a slowdown in the New Jersey economy in their business activity surveys.
Rae Rosen, senior economist with the Federal Reserve Bank of New York, said New Jersey’s economy expanded at a lackluster 0.8 percent for the 12 months that ended in November. New York City’s economy grew five times faster in the same period, posting a robust gain of 4 percent. Fed economists say their data lends support to the argument that New Jersey’s high cost of doing business, from high taxes to a tough regulatory environment, are discouraging job creation.
The Philadelphia Fed said its leading index for the New Jersey economy in November was 1.1, the lowest reading in six months, suggesting only modest growth in the State’s economy through the third quarter of 2007. Commenting on the economic activity index for New Jersey, which fell to 0.1 percent in November, Fed economist Ted Crone said: “That’s a slowdown.” However, he said, the economy still has momentum.
New Jersey Business Climate
The high cost of doing business—from high taxes, health insurance and energy costs to a tough regulatory environment—have made New Jersey far less competitive than it used to be as a place for business expansion. These high costs are often cited by regional economists and New Jersey employers as one of the biggest reasons why the State’s employment growth has slowed in recent years.
For example, only 17 percent of employers responding to NJBIA’s 2007 Business Outlook Survey said New Jersey is a good place for business expansion, down from 28 percent the year before. This is the worst rating since before 1985. Survey respondents identified the overall cost of doing business in New Jersey as one of their worst problems, on a par with their two worst problems, health insurance costs and property taxes.
In their July 2006 report, New Jersey’s New Economy Growth Challenges, Rutgers economists Hughes and Seneca conclude that the high cost of doing business in New Jersey is causing corporate America to look elsewhere to satisfy its relocation and expansion needs. If the State does not work to lower costly barriers to business expansion, they said, New Jersey will continue to lose its competitive edge and give up jobs to other states.
New Jersey also ranks near the bottom of most national surveys that measure how attractive the 50 states are to business.
The Small Business and Entrepreneurship Council, in its small-business survival index, ranks New Jersey last among the 50 states for having policies supportive of small business. For two years running, the Tax Foundation has ranked New Jersey 48th in the nation for its business-tax policies, and a CFO Magazine survey ranked New Jersey 49th for its tax environment. CEO Magazine’s latest survey said New Jersey is the 46th worst state in which to do business. And the Milken Institute, in its annual relative cost of doing business index, found New Jersey to have the nation’s third highest cost of doing business.
New Jersey fared better in the 2007 Development Report Card for the States, published by the Corporation for Business Enterprise Development. In that report, New Jersey received a “B” for overall for economic performance and business vitality. But the group noted that “slow job creation, business closures, aging infrastructure and high living costs are problems for the State.”
In its first ranking of the best states for business, Forbes Magazine ranked New Jersey as the 16th best state based on 30 metrics in six main categories: business costs, economic climate, growth prospects, labor, quality of life and regulatory environment. New Jersey was cited as having the nation’s 5th highest cost of doing business, but did better on other measures.
When it comes to the quality of its educational system, however, New Jersey is ranked better than most other states. For example, the 2006 Smartest State report by the Morgan Quitno Press ranked New Jersey 4th among the 50 states in public-school education. And the Quality Counts report by Editorial Projects in Education found that New Jersey students have a better chance at success than children in all but three other states.
This report was prepared by Christopher Biddle, NJBIA Vice President of Communications, he can be reached at 609-393-7707, ext 227.
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