Surge in Business Spending
Stirs Manufacturing ActivityThe fastest economic expansion in 19 years, a surge in business spending, fresh signs that manufacturing is rebounding, and continued modest job growth in New Jersey all point to the start of a period of sustained economic growth for the Garden State.
Joel Naroff, chief economist with Commerce Bank, said he is confident this will not turn out to be yet another false start.
"The economy has shifted gears, and we should be in good shape for quite some time," Naroff said recently, commenting on the nation's 7.2% surge in Gross Domestic Product in the third quarter, the biggest three-month increase since 1984.
The most encouraging news to come out of the Commerce Department's GDP report was that business spending drove much of the nation's third quarter growth. Until recently, consumer spending had carried the economy, and business spending had lagged.
Business spending on new equipment and software rose at a 15.4 percent annual pace in the third quarter, the fastest since the first quarter of 2000. This followed an 8.3 percent rise in comparable business spending in the second quarter. With corporate inventories depleted, many companies will have to hire more workers and pick up the pace of production to keep up with renewed demand.
Investments in computer and other high-tech equipment rose by an 18.3 percent annualized rate in the third quarter, the same as the second quarter. Spending on equipment outside of the high-tech sector grew by 12.5 percent.
"This is very good news for America's manufacturing base," said David Huether, chief economist with the National Association of Manufacturers. "It signals that a broad-based strong cyclical recovery-essential for a meaningful rebound in manufacturing output and employment-has finally arrived."
In terms of job growth, at least, New Jersey is among a handful of states that have outpaced the nation. In the first nine monthsof 2003, the state's private sector employers added 26,500 new jobs. (See Chart below.) The US economy, following a longperiod of declining employment, added about 250,000 private-sector jobs in August, September and October, but is barely atbreak-even for the year.
Looking ahead, Rutgers University economist Joe Seneca, chairman of the Governor's Council of Economic Advisors, said New Jersey could be expected to create about 40,000 new jobs in 2004.
By historical standards, the current rate of job creation in New Jersey is modest. It is below the postwar average of 50,000 new jobs a year and well below the late 1990s mark of 90,000 new jobs a year.
Most of the new jobs in the first nine months of this year have come from the service sector (28,400) and construction (5,800), according NJ Department of Labor data released in October.
Employment in the state's manufacturing sector has continued to fall, though at a slower rate of decline. In the first nine months of this year, manufacturers cut 7,700 jobs in New Jersey. Since the start of the state's manufacturing recession in January 2001, close to 70,000 factory jobs have been lost. (See Chart below.)
It remains to be seen if the recent upturn in manufacturing orders and sales will be enough to drive employment higher, but recent reports from the Federal Reserve Banks of New York and Philadelphia offer hope that job losses will continue to diminish.
Manufacturing activity in the Philadelphia region, which includes South Jersey, expanded at its fastest pace in five years in August, driven by rising orders and shipments, the Philadelphia Federal Reserve Bank reported.
The bank also reported that its index of current economic activity for New Jersey increased again in July, having moved up steadily over the preceding 12 months. Finally, the bank's leading economic index for New Jersey remained positive in July, evidence that the recovery is gaining momentum.
Manufacturing activity has also shown steady improvement in the New York region, which includes the northern New Jersey counties. The Federal Reserve Bank of New York said manufacturing expanded in the region for a fifth straight month in August, as shipments and new orders continued to rise.
The regional surge in manufacturing activity has also showed up in the most recent national data. The closely watched Institute for Supply Management's factory index rose in October to 57, its highest level since January 2000. It was also the fourth straight month the index had risen above 50, signaling expansion.
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Surge in Business Spending