A new report from the Steve Sweeney Center for Public Policy at Rowan University’s College of Humanities and Social Sciences finds that after a strong 2022 in New Jersey, continued personal income growth in 2023 would cushion any short or modest recession.
The report, the Multi-Year Budget Workgroup: New Jersey Economic Outlook, was prepared by Charles Steindel, former chief economist for the New Jersey Treasury Department.
Steindel noted that New Jersey is coming off a very strong year, which he believes has the Garden State positioned to weather any broader, national economic headwinds, such as the Federal Reserve’s interest rate increases and a drop in retail sales and industrial production in the latter part of 2022, an ongoing slippage in homebuilding and house sales, and layoffs by major companies as factors that are slowing economic growth in 2023.
“New Jersey’s economy did well in 2022, setting new highs in jobs output, and income, generally matching or exceeding growth in neighboring states, and keeping pace with the national expansion,” said Steindel. “However, the widespread expectation is that the national economy could fall into a recession in the near future, reflecting the interest rate hikes the Federal Reserve has generated to bring down price inflation. In this environment New Jersey’s economy will face headwinds.”
If a modest or short recession hits the country, Steindel said that New Jersey would start to recover in 2024.
“Nevertheless, ongoing corrections in the equity and housing markets will weigh upon many New Jersey residents and impact state revenues for some time,” said Steindel.
“The recovery from the pandemic collapse has been remarkable: New Jersey saw a drop in jobs in early 2020 that was notably larger than the national average, but has since experienced larger than average gains,” said Steindel. “The state’s job count grew 3.6% from December 2021 to December 2022, higher than the national gain of 3.0%, as well as New York’s 3.1%, and a touch better than 3.5%.”
As 2023 gets underway, Steindel said there are concerns that a national recession may soon be underway.
“In order to reverse the increase in price inflation, the Federal Reserve has been engineering marked increases in interest rates; these will have the effect of restraining many forms of economic activity,” Steindel wrote. “In addition, the impact of the huge amounts of COVID relief expenditures by the federal government are fading. Furthermore, the war in Ukraine has pushed up grain and energy prices, draining spending power. Finally, China, whose economy is now on par with the U.S. as the world’s largest, is coping with numerous problems, most importantly financial imbalances and risks of COVID-related disruptions. Chinese problems could retrigger supply-chain headaches.”
Steindel said that New Jersey will not be immune from a recession, adding that with a mild recession he expects a modest loss of jobs in 2023 and an uptick in the unemployment rate.
The recovery from any recession would also be sluggish, according to Steindel, due to high interest rates, combined with partisan gridlock, which will likely prevent any cyclical relief on the tax or spending fronts.
“In this environment, not only will income and spending growth slow, but so will real estate transactions (in number and dollar values), as well as capital gains realizations,” said Steindel. “All these factors will work to hold down revenues. A return to growth in 2024 will ease the situation, but as we saw in the last decade, it will take some time before revenues again grow robustly.”
“This independent five-year economic forecast by Dr. Steindel, who prepared economic projection for both Treasury and the Federal Reserve Bank of New York, is an important addition to the public debate heading into the Governor’s Budget Address,” said Sweeney. “His projection that any recession would most likely be mild and short will be welcome news for the Legislature as heads into its budget deliberations.”