Hughes expects NJ to be Waiting for the ‘Immaculate Disinflation’

January 11, 2024

The “immaculate disinflation” is what Rutgers University economist Jim Hughes, Ph.D., expects for the nation and New Jersey’s economy in 2024.

This is his take as past Federal Reserve interest rate hikes – 11 increases from March 2022 to July 2023 – cool down soaring inflation, which peaked in June 2022 with a CPI of 9.1% and was reported today at 3.4% for the past 12 months ending in December.

Speaking at the New Jersey chapter of the National Association of Corporate Directors’ (NACD) 2024 Economic Forecast this morning at the Jasna Polana Country Club in Princeton, Hughes said a key question now is whether the Fed’s interest rate hikes will create a soft landing with a slow-growth economy, or a hard landing that will “crash” the economy.

“Increasingly, business sentiment these past several months has been shifting towards a soft-landing scenario,” Hughes said.

At the same time, he questioned the staying power of consumers as the key driver of the US and New Jersey economies. He said that the excess savings of US households were driven by federal pandemic rescue funds, fast employment growth and labor participation, and expansive pay raises.

“This boosted consumer spending in 2022 and 2023,” Hughes said. “However, by last fall, about 80% of that excess savings had been burned up. Soon, consumers will start maintaining their standard of living the old-fashioned way; by borrowing and increasing credit card debt.”

With these and factors such as remote work and its impact on commercial real estate, Hughes said 2024 will be an interesting and surprising year.

During a panel discussion moderated by Richard Mroz, NACD NJ director, Michele Siekerka, president and CEO of the New Jersey Business & Industry Association (NJBA), said the association’s member companies are somewhat optimistic heading into 2024. Based on NJBIA’s recent Business Outlook Survey, which was released in late November, 2024 will be a “status quo” type of year with most companies not anticipating making a profit.

One of the biggest challenges companies will face is the rightsizing of wages that were hyperinflated in the aftermath of the pandemic in order to get people back to work.

“Companies were doing anything they could to bring people in. Now that inflation is settling down, it’s hard to put that [wage] cat back in the bag,” Siekerka said.

Companies are not expecting major layoffs this year either, she said, but added there will be “no growth” in terms of job numbers and expansion of physical space.

The No. 1 concern for companies in New Jersey will continue to be the cost of doing business in the state, according to Siekerka.

“For the manufacturing sector, for example, a big concern is the cost of products and services and the impact that has when bidding for a contract on a national basis. If you are based in New Jersey, it is significantly difficult [to deal with] the cost of energy, environmental regulations, and workforce mandates … it’s all the regulatory concerns that businesses have that exponentially drive up the cost of bidding on national contracts,” she said.

Commenting on the impact of remote work on commercial real estate, Siekerka said many companies are shrinking their footprint to reduce their bottom line as they are having a difficult time bringing the workforce back to the office.

Not a day goes by where there isn’t a CEO trying to pull workers back into the office, Siekerka said. “You have some CEOs trying to be leaders in this arena, saying, ‘We are mandating three days in the office and then moving to five days.’ However, this is hard to enforce when competing companies will offer remote work to attract employees.

“The next generation will own this,” Siekerka continued. “They have been remote long before COVID started.”

Tom Bracken, president and CEO of the New Jersey Chamber of Commerce, commented that the changing focus of the State Legislature and Murphy administration is a problem. “The fact is, we haven’t had great support from them in recent years regarding business issues that need to be addressed. It has become a body that has decided to regulate businesses more, giving more to workers than employers.

He said he is cautiously optimistic that the new Legislature, with 25% of members newly elected, will be able to focus on business community issues.

NJ Business Magazine, January 11, 2024

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