Mildest Recession on Record
May Yield to Weak Recovery Recession? What recession? The latest economic data suggests that the recession of 2001 was one of the shortest and mildest on record. The economy stumbled in the third quarter of 2001, then got up, dusted itself off and moved forward at a 1.4% annual growth rate in the fourth quarter, the government reported on February 28.
However, due to the peculiar nature of this downturn, in which business spending plummeted but consumer spending remained strong, the recovery is likely to be anything but rocket powered. In fact, it could end up being one of weakest of the nation's 10 postwar recoveries.
Consumers spent so much money on cars and houses in 2001 that this year's economy won't get the usual kick start that comes from pent-up demand. And the falloff in capital spending, which led us into a deep manufacturing recession, is only just now showing signs of ending its dismal run.
Officially, the longest national expansion on record ended in March 2001. New Jersey's expansion ended in June, three months later, making in 109 months in length, the second longest on record. (The 1960s produced the state's longest expansion-110 months of continuous economic growth.)
Taking a look at the performance of the NJ economy last year, the state's private-sector employers sustained their first net loss of jobs in nine years. Between December 2000 and December 2001, 13,500 jobs disappeared, according to revised employment data issued by the NJ Department of Labor at the end of February. (See Chart below.) Earlier estimates showed a larger job loss.
That's quite a contrast to an average of 80,000 new jobs created in each of the previous five years. However, it is a blip compared to the quarter of a million jobs lost in New Jersey's horrendous 1989-92 recession.
The state's manufacturing sector accounted for all of this loss. Our goods manufacturers shed 26,300 jobs last year or 6 percent of their combined workforce, an enormous contraction.
This represents the largest loss-both as a total number and as a percentage-in the last decade. (See Chart below.) Like the nation, New Jersey's manufacturing sector has been in a severe slump for more than 18 months. Some have called it a manufacturing depression.
Emblematic of the decline was the announced closing of the Ford assembly plant in Edison, which will erase 1,600 New Jersey jobs. The closing of the Edison facility, incidentally, leaves just one auto assembly plant in the entire Northeast, the GM plant in Linden. However, GM recently announced plans to layoff 1,100 workers from that facility, putting the future of the Linden plant in doubt.
While manufacturing accounted for all of New Jersey's net job losses over the last year, the largest sector of our economy- the service industries-eked out a modest gain of only two tenths of one percent, adding just 6,000 jobs.
The construction industry actually did quite well, piling on an additional 6,800 jobs for a gain of more than 4 percent.
Looking ahead, economic forecasters say the New Jersey economy likely will remain flat in the first half, followed by a modest pickup in the second half. Continued corporate layoffs and a recession-induced overabundance of office are among the factors that could dampen the state's recovery.
We can expect a modest boost in employment of perhaps 10,000 or more for the year, a subpar performance.
Although New Jersey remains in a deep manufacturing recession and the rest of the economy has stalled, we appear to be doing better than the nation as a whole.
We ended the year with an unemployment rate of 4.9 percent in December, well above the low of 3.6 percent we hit a year ago. However, this is nearly a whole percentage point below the national unemployment rate of 5.8 percent. And we've been below the nation for 25 consecutive months.
New Jersey's economic downturn is causing some real pain for our new Governor. The state budget deficit is now pegged at $2.9 billion for the fiscal year ending this June. This reportedly makes it proportionally the deepest state budget deficit in the nation. An even larger deficit is anticipated for the fiscal year, which begins in June.
What follows is a more detailed forecast for the state economy, courtesy of the Governor's Council of Economic Advisors. The forecast, if accurate, shows a slow-moving economy that won't develop a good head of steam until 2003:
Gross State Product-Growth of the state economy, as measured by the gross state product, will be 2.2% this year, the weakest since 1990.
Retail Sales-The rate of retail sales growth slowed dramatically last year and will slow again this year to a paltry 1.4%.
Car Sales-New car sales fell by more than 3% last year even with all of the incentive financing. Auto sales are expected to fall by 6% this year.
Housing-New-home sales fell by 20 percent last year to 27,000, down from the expansion high set the year before. Sales will remain flat this year before creeping up again in 2003.
Employment-A gain of about 10,000 jobs in 2002 will be the worst performance since the last recession. But employment is expected to perk up in 2003, led by pharmaceuticals, research & technology, finance and warehousing/distribution.
For more information, contact Chris Biddle at cbiddle@njbia.org.
Mildest Recession on Record
