The State economy turned the corner last year, adding 58,800 private-sector jobs and another 17,100 government jobs for a total of 75,900 new jobs in all.

While the state turned in its best performance in four years, economists said the unusually high growth in the number of government jobs was problematical.

Economists with the Rutgers Economic Advisory Service said in a recent report that the 2.7 percent surge in public-sector employment was bigger than any other sector of the State economy. "This is one result of statewide deficit spending, and is one of the contributing causes to the endemic property tax problem in New Jersey," the authors said.

Government job growth in New Jersey, whether measured as an absolute number or as a percentage increase, also outstripped comparable employment growth in neighboring states and the nation. (See Table 1)

The 2.7 percent growth rate in New Jersey last year was three times faster than in the nation as a whole. In the neighboring states of Connecticut and New York, the number of public-sector jobs declined, while in Pennsylvania, Maryland and Delaware, they increased only marginally.

New Jersey's rapidly expanding government bureaucracy, far from being a sign of economic strength, can be viewed as a drag on growth because it is supported by rising state and local taxes, which robs businesses and consumers of spending power. Most of the growth in government employment came at the State level, where 7,500 jobs were added, followed by local schools (4,500), and local governments (4,300). Federal employment declined last year in New Jersey.

Putting aside the issue of government employment, the New Jersey economy had a good year in 2004. The net gain of 58,800 private-sector jobs was the best in four years. This follows a meager gain of 12,000 jobs in 2003 and declines in 2001 and 2002. (See Chart 1)

Even with last year's gain, the State's private sector remains 3,300 jobs short of the all-time employment high of 3,431,200 jobs set in December 2000. Thus, four years after the start of the 2001 recession, New Jersey still has not won back all of the jobs lost in the downturn.

If government jobs are added back in, New Jersey's employment picture appears to be brighter. Total statewide employment, which includes both private and public sector jobs, eclipsed its pre-recession high in April 2004.

The growth of the State economy, though steady over the last year, has been uneven, with some sectors showing strength and others weakness.

The sectors that contributed most to last year's private-sector job growth were private education and health services (15,200 jobs), leisure and hospitality (12,500), professional and business services (10,400), financial services (9,600), and construction (8,200). (See Table 2)

These gains were somewhat offset by continued small losses in two sectors that, while they have put the worst behind them, are still shedding jobs-namely, manufacturing (down 4,600 jobs in 2004) and information (down 700), which includes telecommunications and computer technology.

Manufacturing and information were also two of the sectors that led New Jersey and the nation into recession four years ago. As a consequence, the job losses they have sustained over the last four years have been substantial. Manufacturing employment has declined by 78,500 jobs or about 19 percent since December 2000, and the telecom sector lost 15,000 jobs, a 27 percent fallback, between 2001 and 2004.

The large employment decline in both industries was compounded by the fact that most lost jobs paid wages that were higher than the State average. In 2003, the average manufacturing wage in New Jersey was $53,000 and the average telecom wage was $55,100, significantly higher than the statewide average of $40,500 for all occupations.

The good news in both sectors is that job losses have slowed. In the telecom sector, promising new industries are providing a boost. Most of the telecom losses have come from the heavily regulated wired sector, but these losses are being offset by growth in wireless technology, fiber optics, and voice-over-the-Internet protocol. And the manufacturing sector has gained tremendous momentum over the last year, buoyed by a falling dollar, low interest rates and a rebound in business spending.

Looking ahead, New Jersey is expected to add close to 50,000 jobs annually over the next few years, with most of that growth coming in education, health, leisure and hospitality, and professional and business services, according to projections by the Rutgers Economic Advisory Service. The state's unemployment rate, which recently fell in December to a four-and-a-half-year low of 4.2 percent and is well below the national average of 5.4 percent.

New Jersey's job market blasted out of its post-recession doldrums this spring with the net addition of 32,200 private-sector jobs in March, April and May, giving the State a healthy net gain of 29,000 private-sector jobs for the first five months of the year.

Since March 2003, the low point for the State's employment downturn, New Jersey has regained 59,000 private-sector jobs or two-thirds of the 93,000 that were lost in the downturn.

As of May, the State remained 33,100 jobs short of the pre-recession peak of 3.43 million private-sector jobs reached in December 2000. (See Chart below.)

The addition of new jobs builds on a thin gain of 12,000 private-sector jobs in 2003 that followed two years of falling employment.

New Jersey's unemployment rate has fallen as job growth has picked up. The rate fell to 4.9 percent in May from 5.3 percent in April. It has dropped a whole percentage point over the last year and is now at its lowest point since October 2001. The national unemployment rate held steady at 5.6 percent in June.

Not all sectors of the State economy have enjoyed job growth, however. The hard-hit manufacturing sector remains in negative territory. New Jersey manufacturing employment fell by 3,300 jobs in the first five months of the year, bringing the total loss to 77,000 since December 2000, a drop of 18 percent.

Although New Jersey manufacturers, like their counterparts across the nation, have seen their business pick up in 2004, this has merely slowed the rate of factory job losses in the Garden State.

The State's service industries, with some help from construction, have been the workhorse of this recovery. Significant numbers of new jobs have been added in education and health services, leisure and hospitality, and financial services. Employment levels in all of these sectors have reached record highs and are well above pre-recession levels, as shown in Table 1.

Other service sub-sectors have not fared as well. Information services, for example, is still 25,700 jobs below its pre-recession peak of 127,300. The performance of this sector has been dragged down by massive layoffs in the State's telecommunications industry.

Private-sector employment has been growing at a marginally faster pace in New Jersey compared with the nation as a whole. Between November 2001 (the official end point to the US recession) and April of this year, New Jersey private-sector employment grew by 4,700 jobs, a gain of about one tenth of one percent. In this same period, employment nationally fell by 153,000 jobs, a decline of one-tenth of one percent.

In the mid-Atlantic region, employment has grown more quickly in New Jersey than in Connecticut, Delaware, New York and Pennsylvania. Only Maryland has enjoyed faster growth, as shown in Table 2.

A rapidly expanding economy, propelled by a restocking of business inventories and a surge in business spending, is driving this phase of the economic recovery. The "jobless recovery" of the last two and a half years is now a job-abundant expansion.

The US economy added an average of 212,000 new jobs per month in the first half of the year, putting the Bush Administration's once derided prediction of 2.6 million new jobs in 2004 within reach.

The quickened pace of hiring has boosted consumer confidence. Consumer spending remains strong, as do home sales. Manufacturing has joined the party with a robust recovery that is now a year old. The Institute for Supply Management's manufacturing index marked a 13th consecutive month of expansion in May, and manufacturers nationally are finally adding new jobs, even if they are not doing so in New Jersey. To all indications, this is shaping up to be one of the better years for manufacturing, although activity has moderated somewhat in recent months.

Manufacturing activity in the Philadelphia and New York regions, which includes most of New Jersey, has also been positive over the last 12 months, as measured by the Fed's regional banks. Economists expect manufacturing activity in the region to remain strong through the end of the year.

The Commerce Department reports that national gross domestic product grew by 4.4 percent in the first quarter. Economists expect the economy to advance at a 4.5 percent rate of growth for all of 2004, up from 3.1 percent last year and 2.2 percent in 2002.

Now that the long-awaited party is underway, the question has shifted to how long it can last with interest rates on the rise. On June 30, Alan Greenspan and the Federal Reserve embarked on a "measured" course of interest rate hikes, taking a first step to move interest rates off a 46-year low. The central bank raised its target for short-term rates to 1.25 percent from 1 percent. At the same time, the Fed raised its discount rate (the rate it charges banks for advances) by a quarter percentage point to 2.25 percent. Several commercial banks responded by raising their prime rate to 4.25 percent from 4 percent.

By the end of next year, economists expect the Fed funds rate to rise from its 46-year low of 1 percent to 3.75 percent. A neutral funds rate, one that neither stimulates nor dampens the economy, is generally thought to be in the 3 percent to 5 percent range.

Source: US Bureau of Labor Statistics, monthly non-farm employment data, seasonally adjusted private-sector employment, November 2001 through April 2004. Private-sector employment does not include government employees. NJBIA Vice President Christopher Biddle prepared this report.

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