R/ECON: New Jersey’s employment to moderate substantially, dampen state’s real GDP

Though New Jersey’s nonagricultural employment will rise by 2.1 percent – or 84,700 jobs – through the end of 2016, it will moderate substantially to average about 0.4 percent growth annually over the next 10 years, said Michael Lahr, director of the Rutgers Economic Advisory Service (R/ECON), at the semiannual subscriber conference on Friday, November 18.

After falling rather rapidly during 2015, the state’s unemployment rate reached 4.3 percent in February 2016 – but has risen somewhat since, hitting 5.3 percent in August. It will average 4.9 percent this year, then rise a bit more to 5.4 percent in 2017. “We expect the unemployment rate to edge upwardly very slightly, but still average 5.4 percent during the remainder of the forecast horizon,” Lahr stated. “Though the state’s rate has fallen below the nation’s, on balance the economy will return to favor the nation through the remainder of the forecast period.”

James W. Hughes, distinguished professor and dean of Rutgers’ Edward J. Bloustein School of Planning and Public Policy, joined Lahr on the program to discuss national economic trends, while Stuart Shapiro, professor of policy and director of the Bloustein School’s Program in Public Policy, discussed how the coming Trump Administration could change our nation’s economic outlook.

New Jersey’s consumer prices rose almost imperceptibly in 2015, held back by falling oil and other energy prices both early and late in the year. Prices will rise 0.7 percent in 2016, but bounce back up to the long-run average of about 2.6 percent per year through 2026. Lahr noted the forecasted inflation rates remain higher than those expected for U.S. consumer prices.

State personal income rose 4.0 percent in 2015; it will rise by 3.8 percent in 2016 and an average of 3.9% annually through the forecast horizon due to the now bleaker-looking labor market conditions. The weaker-looking state economy will slow the rate of the state’s population growth, which is expected to average 0.3 percent a year from 2018 to 2026, an increase of about 219,000 residents.

A new president in the White House always brings with it a good deal of uncertainty for any forecast. The incoming Trump Administration is certainly no exception. So what can we expect?

In his presentation Shapiro noted that economically speaking, during his campaign, now president–elect Trump promised new trade deals, improved infrastructure, deportations, across-the-board tax cuts, repeal of the Dodd-Frank legislation on financial regulation, eased environmental standards, and at least some adjustment to the Patient Protection and Affordable Care Act (PPACA) – better known as “Obamacare.” “While he is already pulling back on his targets on some of the promises, there remain some positions that remain contradictory and others that are insufficiently unspecific to enable well-informed speculation,” Shapiro said. “Still, through Executive Orders or sufficient backing in Congress, he could get some of his ideas implemented.”

While our president-elect can possibly move unilaterally on trade, the results of taking a hard stance with China or Mexico on this matter could be quite disastrous to the national and world economies, he continued. Just the threat of U.S. action could generate repercussions in those trade partner nations; for example, devaluation of the peso and slower rates of international investment in China. He could also take Obama’s lead and rule through Executive Orders to effect changes in environmental regulations.

Both Lahr and Shapiro agreed that tax changes are much more likely, since his targets on this at least coincide with those stated in his party’s platform. However, his proposed tax changes do not jibe with rises in spending on things like infrastructure investments, greater military spending, and large-scale deportations, so those plans need a bit more work. Still, he may well end the H1B visa program that allows U.S. companies to hire skilled immigrants. And he has already suggested that he only seeks tweaks to Obamacare to “fix” that program.

Economically, the big state news this quarter is the new motor fuel tax legislation signed by Governor Christie, raising the tax by 23.5 cents per gallon as of November 1. It was offset by a drop in the state’s sales tax rate from 7 to 6.875 percent on January 1, 2017, and further to 6.625 percent on January 1, 2018. Moreover, after counting ballots submitted by November 8, the added fuel tax revenues are dedicated to the Transportation Trust Fund, leaving the state’s General Fund a bit tighter than anticipated.

R/ECON analysis shows that funding designated for the Transportation Trust Fund will be about $1.25 billion annually over the forecast period, albeit with little growth as the added cost of the tax dampens travel. On the other side of the ledger, we find that the loss of the sales tax will cause the state’s General Fund to be about $600 million lighter annually, although that amount will grow over time as retail sales rise with incomes. Both of these numbers essentially verify equivalents produced by New Jersey’s Office of Legislative Services.

R/ECON, part of Rutgers’ Edward J. Bloustein School of Planning and Public Policy, provides private-sector and government entities with a comprehensive set of tools for analyzing the New Jersey economy.