With 2022 now in the rear-view mirror, it’s time to get a read on what’s likely ahead for the next 12 months. To that end, NJBIZ recently spoke with Christopher Maher, the CEO of OceanFirst Bank and the current chair of the New Jersey Bankers Association.
Maher talked about what economic challenges businesses will likely face in 2023 and some of the important markets that will drive the economy.
What follows is an abridged version of that conversation. The questions and answers have been edited for length and clarity. The full interview is available at njbiz.com/njbizconversations.
NJBIZ: From what you’re seeing, your experience, are businesses and individuals, consumers borrowing, investing, spending at levels that are conducive to growth, in the short- to medium term?
Christopher Maher: If we think about where we are today in the fourth quarter things are probably maybe even a little bit stronger than folks would have thought just a few months ago. So, I would say, conditions are stable, meaning that we’ve seen a slowdown in certain areas where we needed to see things slow down a little bit. Some of the construction trades. Some of the logistics work and things like that. … Our customers continue to be busy. They still have backlogs, but not the same backlogs they might have had six months ago.
Generally, the supply chain concerns are easing, but not everywhere. I mean, there’s still some significant bottlenecks. Housing is slow but moving. The inventories remain tight. … Prices are up year over year, not as much as they were earlier in the year, so I think we’re seeing a moderation, but in general a reasonably strong fourth quarter. …
New Jersey is posting some of the best jobs numbers ever recorded. So, there’s a lot of strength in the economy that I think may be underappreciated if you’re watching the wider news.
Q: You touched on a number of things I wanted to drill down on a little bit. But before we get to the individual markets again, I’m just curious about some of the headwinds. We’ve talked about this before, inflation being the main one. You mentioned the supply chain disruptions have started to ease off a little bit, which should be reducing some of the pressure. But just this morning, we’ve got a producer price index that went up a little bit more than most folks were expecting. How concerned should business owners be about inflation? How concerned are you? What do you think is the outlook at this point?
A: I think we’re seeing definite signs that certain components of inflation are easing. So, for example, if you look at the price of goods … furniture, household goods. Those prices are coming down. The availability is getting better.
But we’re still seeing persistent inflation in services. Think about hospitality. People that want to go out to a restaurant or take a trip … overall the inflation number is still higher than we’d like to see and I think we have to be reasonable about our expectations for how that’s going to change over the next year. Inflation is not something that is going to — we’re not going to wake up one morning and see that it dropped back down to 2%. This is a gradual change. The [interest] rate moves so far are having an impact.
So, I think we just have to let this play out, and most of the folks I talk with believe that you may not really see significant decreases in inflation until the second half of next year.
Q: Well, that brings us then to interest rates. The Federal Reserve has made some comments that — or Fed officials have made some comments suggesting that the rate of increases might slow down a little bit. But on the other hand, the big jobs number suggested that that might be premature. How have calculations changed as interest rates are going up, and how will they change, do you think, going forward as the Fed continues down this path?
A: We’re in a blackout window right now around the Fed, and because of my service with the Federal Reserve Bank of Philadelphia, I won’t kind of comment on monetary policy. But I’m happy to talk about employment, because I think employment is something we’re all watching. It remains stronger than people might have thought at this stage and I actually view that as is a positive. That may sound strange. We do need inflation to moderate, but we don’t want to have an outcome, especially in 2023, where you have what I would call a jobs recession.
So, you know a recession. That is a slowing of the economy, and it kind of brings inflation under control. I think that that’s a very positive thing. If there is a way to do that without fundamentally hurting the jobs number, I think we’re going to be in much better shape.
Q: Well, you anticipated the next question, which was about the possibility of a recession. Again, you can’t talk about monetary policy, but just in general, what are you hearing from folks? Are they worried? Your clients, your customers — are they concerned about the possibility of a major slowdown next year?
A: There is a sense of concern. There is an apprehension about what conditions will be, and I think the uncertainty is the thing that’s making it most difficult; understanding when … might actually see more significant impacts
The degree of the recession – you know recessions are, and I don’t want to minimize them because they cause pain throughout the economy – but they happen. They’re part of the business cycle. Most of our clients, although they may be a little apprehensive, it’s not getting in the way of them making important decisions for their business. So it’s not getting in the way of them hiring thus far, making large capital decisions. … We’ve come to appreciate the quality of the workforce we have. I know I do here at the bank and whether conditions are optimal or not optimal, if you’ve got good employees, you want to hang on to them. And if you’re looking for talent, it could take you three, six, nine months – in some cases a year – to find great talent, so think our clients are saying, [it] might be a little softer next year, but I’m not going to jump the gun. I’m not going to resort to laying people off if I don’t have to. It’s hard enough to find people. Why would I? Why would I separate them from my company?
Q: Well, that’s an interesting point, because we’ve been hearing so much about hiring — how difficult it was particularly over the past, say year or so. On the other hand, you see tech companies laying people off at a fairly quick clip. It’s interesting that you’re hearing that businesses might be a little reluctant to try to do that now, because you’re going to have to staff up again when the economy picks up. Is that the dynamic that you’re seeing?
A: Yes, no question. I mean, when you think about our Main Street businesses, these could be small manufacturers or logistics companies, it takes them so long to find a qualified, warehouse worker, driver or engineer. But if you [make] that effort to find one, you certainly don’t want to lose them. And then we’re seeing – and we’ve seen this in our own workforce – turnover become a higher number for many businesses over the course of the last 18 months. That’s tapering off. Now, I think people are realizing that yes, they may have a little bit of an economic opportunity to get a slightly higher wage somewhere else. But when you’re going into a potential recession, do you want to start a new job with an employer where you don’t have a history, you don’t have those connections, the friends, the kind of the work relationships that contribute a lot to the way we work every day? So, we’re seeing a decrease in turnover. I think other employers are as well.
I view that as a healthy thing, having a little better bond between our employers and their employees.
Q: Now, I want to talk a little bit about some specific markets. First housing — you had said that you thought that had slowed down a little bit. The market had been extraordinarily strong, particularly along the shore, during the pandemic and immediately after. Is it a case where the market just couldn’t sustain that level of growth? Or was there some other dynamic that’s slowing down sales and/or keeping the rate of increase lower?
A: I think what’s happened here is obviously mortgage rates went up. Housing affordability has become a real issue that caused those that create housing, our construction companies, to voluntarily pull back a little bit and to go more slowly. They’re a little apprehensive about getting deep into large projects going into the next couple of years. But it’s interesting, that doesn’t mean it stopped. We still see some terrific projects coming. We were just looking at one last week [that] is probably going to be delivered in two years. That builder is looking at it, saying he’s perfectly comfortable going into the ground now understanding it’s going to take a couple of years. By that point we should be well past this economy.
I would also point out that New Jersey is a little different than many parts of the country. We’re part of this northeast megalopolis where it’s very hard to build new housing units. There are zoning laws. There are local municipalities involved. So we don’t tend to over build in good times and that means that typically even in recessionary times, our housing values hold better than they might in states like Florida or Arizona or Texas, where you have literally hundreds of thousands of new units flooding into the market. We don’t tend to see those kinds of shifts in New Jersey.
Q: OK. An interesting point, although I’m guessing that keeps rents high. That keeps resale prices high as well.
A: That’s the bad side to it. So when you look at resale prices – I think in October they were still 6% over last year – if you look at the affordability of apartments, these are real concerns … and another side of this where, if you’re not able to meet the demand for housing, it creates an unhealthy situation around affordability. And we often talk about affordability, and forgetting the interest rates, just the affordability of the house, the land, the lots, the approvals, the trades, the contractors, the lumber, the appliances. So affordability has a lot of dynamics, and it’s something we need to work on here in New Jersey.
Q: That’s what I was thinking, for a first-time buyer, it’s been very difficult over the past couple of years for those folks.
A: When you look at the median home value in our state approaching $500,000, that first-time home buyer, the person who wants to establish a home and start to build equity for their family, it is a really, really tough time. And I think statewide, it would be worth spending a lot of time talking about the policies that are causing that. Because affordable housing is a necessary element of a working community.
Q: And then what about commercial real estate? You mentioned logistics, which had been a driver of that. I think you said you saw a little bit of softening in that market. How soft is it getting?
A: I think it’s more of a plateau. It had been a pretty good clip for a number of years, and there are two things that are happening. The first is, you have a couple of the largest national users of warehouse space – Amazon and Walmart – pulling back; so that’s a big deal.
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But you also find – and many of our customers are in this situation – they need more space than they would have needed, pre-COVID. They’re keeping larger inventories. They’re keeping secondary and tertiary supplies of things. They want to have more finished goods so they can respond a little bit more easily to demand. They don’t want to wait for something coming from China. So, yes there’s been a little bit of a pullback in demand. I think you’ll see fewer mega projects if you will. But so far, the existing inventory is well-tenanted. The rents are holding up, so I don’t think we’re going to see a dramatic change.
I’d also point out, and I’m not sure everyone appreciates this, that the port in Newark and the work we did around it — that has been a phenomenal advantage to our state. So now for the first time in 22 years it regained the No. 2 and then the No. 1 spot nationally in terms of handling cargo coming from Asia. So, we now have the busiest port in the United States, and that’s a good thing for the economy in New Jersey.
Q: I was just actually talking to someone the other day about the fact that the number of jobs connected to the port is immense. It’s a huge driver of the economy in the region.
A: Absolutely. And any of those projects — it’s easy to complain when it takes years and years to dredge the harbor and raise the bridges and go through all that. But the ability to take the Panamax cargo ships that come through the Panama Canal is a real differentiator for the for the New York metro region. … When you think about going from the No. 3 port to the No. 1 port just in the last three months — and we’re accelerating. So that’s a really good thing.