State Job Gains Shrink with Loss of
10,800 Private Sector Jobs in AugustDespite a promising mid-year employment surge, New Jersey's hopes for an exceptional year of job growth faded in August with a sharp decline in both the manufacturing and service industries.
A loss of 3,000 positions in manufacturing and 8,300 in services, fractionally offset by a gain of 500 jobs in construction, left the state with a deficit of 10,800 private-sector jobs in August, according to preliminary data issued by the NJ Department of Labor (DOL).
That decline, plus downward revisions of data for earlier months, has pushed the year-to-date gain in the private sector down to 18,000 jobs, an increase of one half of one percent. (See Chart 1 below)
This gain, while well below the postwar average, nonetheless puts the Garden State ahead of the nation as a whole, which lost 338,000 private-sector jobs in the same time period.
August was only the third month this year in which service-sector employment declined in New Jersey. But the slide in manufacturing employment, continuous for almost three years, shows no sign of abating. Since December 2000, New Jersey's goods producers have cut 68,500 jobs, expanding their payrolls in only three of the last 34 months. This approximates the total number of manufacturing jobs lost in the preceding nine years! (See Chart 2 below)
New Jersey's unemployment rate, at 5.9% in August, is down from a high of 6.1% in July. But this isn't necessarily a good sign since it was due to a drop in the size of the labor force, an indication that more discouraged workers have stopped looking for work. The current jobless rate also remains well above the expansion low of 3.4 percent recorded in February 2001.
A discouraging aspect of current employment losses, particularly in the manufacturing sector, is that many of these jobs are probably lost forever.
The Federal Reserve Bank of New York, in a recently released study, concluded that eight out of ten jobs lost in the current employment downturn have been permanently erased as a result of structural changes in the economy.
Because the lost positions will have to be replaced by new jobs in new industries, job creation in the early stages of this recovery is likely to be slow, the bank said.
This finding explains the discrepancy between the economy's recent growth (the national economy has actually expanded in each of the last seven quarters) and its seeming inability to create new jobs.
Between November 2001, when the national recession officially ended, and June of this year, national gross domestic product steadily rose. Yet, overall employment continued to fall, giving rise to a second consecutive "jobless recovery." (The first followed the 1990-91 recession).
Since the start of the recession in March 2001, the nation's private sector employers have cut 3.3 million jobs, virtually all in the manufacturing sector. But 40 percent of those losses have occurred since the recession ended.
Little wonder, then, that the recent period of economic expansion has been dubbed not just a jobless recovery, but more to the point, a "job-loss" recovery.
Because the job losses are permanent, rather than cyclical, most employers are not calling laid-off workers back to their old jobs, the New York Fed said in its study. These workers are compelled to find new jobs in new industries or to learn new skills.
Permanent losses in this recession have come mostly in the communications, electronic equipment, and securities and commodities brokerage industries, which continue to shed jobs, the bank said.
In spite of weak or nonexistent employment growth, the national and regional economies are expanding at a healthy pace, and the manufacturing industries, which have borne the brunt of this recession, appear on the cusp of a sustained recovery.
The nation's gross domestic product grew by a 3.3 percent annualized rate in the second quarter of this year, and is expected to grow 4 percent in the second half.
Until recently, consumer spending was the only reliable engine of economic growth. However, business spending, the laggard in this recovery, is finally catching up.
Corporate spending on computer technology and other business equipment has risen steadily since the start of the year. Purchases of equipment and software, for example, jumped by 8.3 percent in the second quarter, the biggest advance in three years. The trend continued in July and August as production of business equipment soared.
The surge in business spending has sown the seeds of a manufacturing recovery. It is giving the economy the lift it needs to start creating new jobs in 2004, economists say. For now, manufacturers are meeting higher demand by working down their inventories and becoming more productive.
The manufacturing recovery has shown up not only in national data, but also in closely watched manufacturing activity in the Philadelphia and New York regions, which encompasses most of New Jersey.
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 last 12 months. Finally, the bank's leading economic index for New Jersey was 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 improved for a fifth straight month in August, as shipments and new orders continued to rise.
A number of significant factors have come together that favor a rapid economic expansion and modest job growth over the next year and a half. They include:
- A surge in corporate profitability and cash flow over the last nine months, giving companies the wherewithal to spend.
- Record low interest rates. (Federal Reserve policy makers recently voted to keep the benchmark US interest rate at 1 percent, the lowest since 1958.)
- Sharply higher stock prices, giving companies access to cheaper equity.
- Record federal stimulus in the form of federal tax cuts and higher defense spending.
- Extra cash in the hands of consumers from the tax cuts and a recent wave of cash-out mortgage refinancings.
- Falling product inventories and an easing of the capacity glut that has plagued companies since the start of the recession.
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State Job Gains Shrink with Loss of