NJ Spotlight: New Jersey’s Near-term Economic Outlook: Glass Half Empty or Half Full?

John Reitmeyer of NJ Spotlight writes on the outlook for New Jersey’s economy in 2019, with analysis offered by GSI’s president Regina Egea:

As the new year begins, New Jersey is enjoying low unemployment and rising wages — two signs that the stronger state economy Gov. Phil Murphy frequently talks about could be gaining traction.

But concerns remain about how to best address the state’s ongoing fiscal challenges. Also troubling: the possibility that continued economic growth could be derailed by political dysfunction in Trenton or a national recession.

A decision on one big issue that will impact the future of the New Jersey economy — establishing a statewide $15 minimum wage — was already pushed off into 2019 by Murphy, a first-term Democrat, and legislative leaders from his own party. Although a deal may be close, Murphy, Senate President Steve Sweeney (D-Gloucester), and Assembly Speaker Craig Coughlin (D-Middlesex) were still working out differences as 2018 wound down on whether some groups should be carved out, at least initially, from earning the higher wage.

Trouble ahead?

State revenue collections are another area of concern. Fiscal year 2019 is already well underway and recent reports from the Department of Treasury indicate growth in tax collections has barely kept up with targets. That trend, if it holds, could foreshadow another ugly budget clash between the governor and legislative leaders in a few months. Meanwhile, the stock market’s response to unsteady political leadership in Washington, D.C., could also upset the state economy, which only recently fully recovered from the last national downturn.

But when it comes to unemployment, the latest official figures from the New Jersey Department of Labor and Workforce Development offer reason for optimism: The state’s jobless rate dropped to 4 percent in November 2018. Over the past 12 months, the unemployment rate has declined steadily since hitting 4.7 percent in November 2017, and 4 percent is the lowest the rate has been in New Jersey since the middle of 2001. The state economy was also up nearly 61,000 jobs since December 2017, marking a strong overall year for job growth.

There are also positive signs about wages in New Jersey, as the latest figures from the U.S. Bureau of Economic Analysis showed a 4.2 percent increase in pay for Garden State workers during the third quarter of calendar year 2018. That follows the release of a recent survey of employers by the New Jersey Business & Industry Association that indicated a strong majority were planning to give their workers raises in 2019.

Opportunity in NJ’s ‘Opportunity Zones’

Murphy is expecting the state to get another economic boost in 2019 from new investments in 169 so-called Opportunity Zones that have been created across New Jersey under recent federal tax changes. In fact, a recent report from LOCUS, a national coalition of real-estate developers and investors, suggested New Jersey’s opportunity zones show the most promise since federal law now allows capital gains to be rolled over at a discount for investments in the specially designated tracts.

“New Jersey is ripe for investors, and this latest analysis is yet another indicator that we are one of the best places in the nation for businesses to put down roots,” Murphy said in response to the LOCUS report.

But Regina Egea, president of the Garden State Initiative, a right-leaning think tank based in Morristown, suggested there is also some cause for concern in her own recent assessment of the state economy. A former state Treasury official who served under Republican Gov. Chris Christie, Egea said growth in the state’s overall labor market is still trailing the nation’s as a whole. Murphy’s refusal to rule out new tax hikes in 2019 is also a concern, she said.

“We continue to see the effects of a hostile climate for business, and the governor’s threat of new and higher taxes creates an environment of uncertainty for residents and businesses,” Egea said.

Making more of the minimum

An important issue for Murphy to resolve is enacting legislation that puts New Jersey on a course to establish a $15 minimum wage. The state’s minimum hourly rate increased modestly on Tuesday to $8.85, but Murphy and other backers of the $15 wage argue that increasing pay more dramatically for low-wage workers will address income inequity and also boost the state economy by putting money in the pockets of those who tend to spend more whenever they see a raise. For their part, many Republicans contend the higher wage could force businesses to shed workers or bring on broader price inflation.

Murphy met face to face with Sweeney and Coughlin last month to go over the details of minimum-wage legislation that Coughlin is sponsoring. It would see the $15 rate put in place for most low-wage workers by 2024. While an agreement appears near, the meeting did not result in an immediate deal as exemptions for some groups like teenagers and farmhands remain a key sticking point.

Meanwhile, general state tax collections through the end of November, the last month for which there is complete data for fiscal 2019 from the Department of Treasury, were barely keeping pace with year-end growth targets. Overall revenues were up 6.5 percent compared with the same period during fiscal 2018 after a series of tax hikes were enacted by Murphy and lawmakers in July. But the state budget for fiscal 2019 requires a growth rate of 7.5 percent to hold through the end of June.

Murphy has already laid out some of his major spending goals for the next fiscal year, including another big boost in the state’s public-employee pension contribution. But Sweeney prefers new benefits cuts, and Sweeney and Coughlin have already signaled they will oppose any tax hikes sought by the governor to back up new spending. Murphy is due to present a state budget by March, and without more widespread revenue growth he may be on a collision course with the legislative leaders unless he revises his spending goals for fiscal 2020.

The governor highlighted the importance of getting more economic growth when he was asked to respond to the legislative leaders during a late-December news conference.

“That’s the best way we can achieve our aspirations and make the investments in things like transit and education, which are at the core of the plans we have to get the middleclass back on its feet,” he said.