With the start of the New Year right around the corner, a lot of New Jersey residents are wondering what’s in store for them economically in 2023.
According to Rutgers University economist and Dean Emeritus James W. Hughes, the New Jersey economy will do OK at the beginning of the year because a number of indicators are positive.
“We still have a robust labor market, we have very, very low unemployment rates, we still have record numbers of unfilled jobs,” he said.
He also pointed out that “consumer spending has been holding up. However, a lot of that is due to built-up savings that occurred during the pandemic and the federal rescue funds.”
On the flip side he said the ongoing interest rate hikes by the Federal Reserve have started slowing some sectors of the economy.
“Manufacturing has slowed, housing has slowed dramatically, the output has declined, the output has declined now for about 10 straight months.”
He said the Fed wants “to slow the economy dramatically, really to get inflation under control, and it takes a long time for those interest rate increases to have an impact.”
A looming downturn
Hughes said when taken together, this means fairly smooth sailing for the next 5 or 6 months — “but by the time we get to the mid-year I think a downturn of some type is baked into the cake.”
He said the question we will face is: Has the Federal Reserve lifted interest rates so high that it tips us into a recession?
“They’re walking a tightrope, they’re trying to start slowing the rates of increase now, and try to get a soft economic landing,” he said.
Hughes noted the University of Michigan Consumer Sentiment Index, which started back in the 1950s, reached its lowest level ever a few months ago, and the overall rate of inflation for 2022 has been around 7%, which means many workers in New Jersey are struggling.
“For every dollar they take home today they only have 93 cents of purchasing power, so they have less purchasing power from their income, but at the same time price for food are still going up.”
A mild downturn is expected by next summer but “hopefully by the end of the year the Fed may start lowering interest rates.”
What NJ residents are expecting
A new report from Bankrate.com finds 66% of Americans do not expect their finances to improve in 2023, including 29% who believe their personal financial situation will probably get worse next year.
The report finds 63% list high inflation as the reason why, followed by stagnant wages (29%) or reduced income (23%).