First Quarter Job Losses Delay
NJ's 2002 Economic Recovery Earlier predictions that New Jersey would arise from the muck of this recession in the first quarter must now be assigned to the dustbin of failed economic forecasts.
The state's private sector suffered a net loss of 11,800* jobs in the first quarter, wiping out a slim gain of 8,000 private-sector jobs in the previous quarter. Economists had hoped that gain would mark the end of New Jersey's shallow 2001 recession.
The first quarter employment loss was spread evenly across the state economy. Manufacturers shed 7,800 jobs-on top of a loss of more than 26,000 jobs last year. (See chart below.) The construction industry sustained a marginal loss of 100 jobs; and service-sector employment fell by 3,900 jobs.
Forecasters are now questioning their earlier optimism and hedging their bets. Rutgers University economists Jim Hughes and Joe Seneca, two of the state's most respected and savvy prognosticators, declared in April that this downturn ain't over yet. They said the first quarter employment loss raises "the specter of a double-dip recession."
They further noted that New Jersey's total employment of 4.01 million jobs at the end of March (including government employment) had reached its lowest point since September 2001, falling 18,100 jobs short of the historic peak of 4.03 million jobs reached in June 2001.
Since hitting a peak of more than 3.43 million jobs in June 2001, employmentin the private sector has fallen by 26,200 jobs in nine months.
Meanwhile, New Jersey's unemployment rate has continued to rise, climbing to a five year high of 5.5 percent in March, up two full percentage points from a ten-year low of 3.5% 13 months ago. Perhaps more importantly, the gap between New Jersey's unemployment rate and the nation's narrowed from a full percentage point in December to just two tenths of a percentage point in March. (See chart below.)
While New Jersey's downturn has been mild by historical standards (more than a quarter of a million jobs were lost in our painfully long 1989-92 recession), the nascent recovery remains anemic and in danger of collapsing.
This raises the inevitable question, what's wrong? Why is the state economy losing ground just as the national recovery appears to gaining traction? Well, even the national recovery may be more fragile than some data indicates.
Yes, the national economy did charge ahead in the first quarter of this year, with gross domestic product growing by a supercharged annual rate of 5.8%. But this was due mostly to inventory restocking, and second quarter growth is expected to be much weaker.
The big problem with the economy is not consumer spending, which has remained remarkably strong over the last six months, but a steep decline in corporate profits and a parallel decline in corporate spending.
Corporate profits plunged 16 percent last year, the harshest decline since World War II. Among the nation's largest 500 corporations, profits fell by a whopping 50 percent, according to the US Commerce Department. To bring expenses in line with revenues, corporations laid off one million workers last year and slashed their spending on new plants and equipment, including computer technology.
In the first quarter, corporations continued to lay off workers, although at a slower pace than last year. And a strong pickup in business spending on plants and equipment, seen as the key to any kind of sustained recovery, has not materialized. Until they see a convincing upswing in sales and profits, corporate CEOs will remain wary and keep a tight rein on spending.
In the manufacturing sector, which was hardest hit by the recession, orders for new durable goods has picked up in recent months, but even this trend is inconsistent and tentative. As for companies in the beaten-down technology and telecommunications sectors, they are for the most part still flat on their backs.
The stock market, after an initial rebound following September 11, is wallowing around like a sick hippopotamus. Sinking corporate profits and a technology sector on life support have spoiled investors' appetites for stocks, which fell to a six month low at the end of April, pushing the Dow Jones Industrial Average well below 10,000.
The good news in all of this is that a double-dip recession remains an unlikely scenario, particularly if consumer spending, which generally accounts for two-thirds of economic activity, holds up. And if corporate profits manage to rebound even modestly, then we can expect the economy to regain solid footing in the year ahead.
*Employment data is based on the NJ Department of Labor's monthly survey of New Jersey employers. The data reported in this article does not include government jobs. Back to Top
For more information, contact Christopher Biddle at cbiddle@njbia.org.
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First Quarter Job Losses Delay