Chart 1: New Jersey and U.S. Employment Indices

2000 to 2006

0.97

0.98

0.99

1

1.01

1.02

1.03

2000

01

2000

04

2000

07

2000

10

2001

01

2001

04

2001

07

2001

10

2002

01

2002

04

2002

07

2002

10

2003

01

2003

04

2003

07

2003

10

2004

01

2004

04

2004

07

2004

10

2005

01

2005

04

2005

07

2005

10

2006

01

2006

04

2006

07

2006

10

Sources: N.J. DOL and U.S. DOL, December 2006.

Ind

ex:

Peak

of

Last

Bu

sin

ess

Cycle

=1.0

Employment: N.J.

Employment: U.S.

EXECUTIVE SUMMARY

New Jersey’s economy expanded very slowly in 2006,with the addition of only 34,600 jobs. The state’s jobgrowth, at 0.9 percent, was half a percent slower thanthat of the nation whose employment base increasedby 1.4 percent. (See Chart 1.) As implied in Chart 1,the state’s job growth weakened over the course of theyear. The state added over 40,000 jobs in the firstquarter of 2006 (at an annual rate), but less than25,000 in the fourth quarter. The state’s performancewas also lackluster when compared to its historicalrecord. Over the 60 year post-World War II era, NewJersey added jobs at an average annual rate of 1.6 per-cent, or about 40,000 jobs. During the past 30 years thenumber of jobs added annually continued to varyaround 40,000, although the annual growth ratedipped toward 1.3 percent as the job base rose.Unfortunately we expect that New Jersey will contin-ue to underperform the nation in terms of job growthagain in 2007.

While weak job growth is a concern, the distributionof growth across industries is also a problem. Nearly aquarter of the state’s new jobs in 2006 were in thepublic sector, clearly a problem when the state is try-ing to lower the tax burden on its residents. Further,of the three-quarters of new jobs in the private sector,most were in the relatively low wage administrativesupport and food service industries, while high wagesectors like manufacturing and information continuedto decline.

The state’s unemployment rate was consistently lowerthan the nation’s from mid-2003 until March 2006.However, their relative positions changed after Marchas a result of New Jersey’s comparatively slow expan-sion. In April, the state’s unemployment rate jumpedto 5.2 percent, surpassing the national rate by half apercentage point, and indicating that New Jersey’slabor market advantage has faded. In our opinion the

particularly sharp decline in the state’s unemploy-ment rate in October 2006 was likely the result of astatistical anomaly. (See Chart 2.)

Chart 2: New Jersey and U.S. Unemployment Rates

2000 to 2006

3

3.5

4

4.5

5

5.5

6

6.5

2000

01

2000

05

2000

09

2001

01

2001

05

2001

09

2002

01

2002

05

2002

09

2003

01

2003

05

2003

09

2004

01

2004

05

2004

09

2005

01

2005

05

2005

09

2006

01

2006

05

2006

09

Sources: N.J. DOL and U.S. DOL, December 2006.

Un

emp

loym

ent

Rat

e(%

)

Unemployment Rate: U.S.

Unemployment Rate: N.J.

Jan.

2000

Apr

.200

0Ju

l.20

00O

ct.2

000

Jan.

2001

Apr

.200

1Ju

l.20

01O

ct.2

001

Jan.

2002

Apr

.200

2Ju

l.20

02O

ct.2

002

Jan.

2003

Apr

.200

3

Jul.

2003

Oct

.200

3

Jan.

2004

Apr

.200

4Ju

l.20

04O

ct.2

004

Jan.

2005

Apr

.200

5Ju

l.20

05O

ct.2

005

Jan.

2006

Apr

.200

6Ju

l.20

06O

ct.2

006

Jan.

2000

Apr

.200

0Ju

l.20

00O

ct.2

000

Jan.

2001

Apr

.200

1Ju

l.20

01O

ct.2

001

Jan.

2002

Apr

.200

2Ju

l.20

02O

ct.2

002

Jan.

2003

Apr

.200

3

Jul.

2003

Oct

.200

3

Jan.

2004

Apr

.200

4Ju

l.20

04O

ct.2

004

Jan.

2005

Apr

.200

5Ju

l.20

05O

ct.2

005

Jan.

2006

Apr

.200

6Ju

l.20

06O

ct.2

006

CENTER FOR URBAN POLICY RESEARCH

FORECAST OF JANUARY 2007

NEW JERSEY: SLOW GROWTH IN 2006 EXTENDS INTO THE FUTURE

Nancy H. Mantell, Ph.D.Michael L. Lahr, Ph.D.

© RUTGERS ECONOMIC ADVISORY SERVICE | CENTER FOR URBAN POLICY RESEARCH | EDWARD J. BLOUSTEIN SCHOOL OF PLANNING AND PUBLIC POLICYCIVIC SQUARE | 33 LIVINGSTON AVENUE | NEW BRUNSWICK, NEW JERSEY 08901 | TELEPHONE: (732) 932-3133, EXT. 565 | FAX: (732) 932-2363

Chart 2: New Jersey and U.S. Unemployment Rates

2000 to 2006

3

3.5

4

4.5

5

5.5

6

6.5

2000

01

2000

05

2000

09

2001

01

2001

05

2001

09

2002

01

2002

05

2002

09

2003

01

2003

05

2003

09

2004

01

2004

05

2004

09

2005

01

2005

05

2005

09

2006

01

2006

05

2006

09

Sources: N.J. DOL and U.S. DOL, December 2006.

Un

emp

loym

ent

Rat

e(%

)

Unemployment Rate: U.S.

Unemployment Rate: N.J.

Chart 1: New Jersey and U.S. Employment Indices

2000 to 2006

0.97

0.98

0.99

1

1.01

1.02

1.03

2000

01

2000

04

2000

07

2000

10

2001

01

2001

04

2001

07

2001

10

2002

01

2002

04

2002

07

2002

10

2003

01

2003

04

2003

07

2003

10

2004

01

2004

04

2004

07

2004

10

2005

01

2005

04

2005

07

2005

10

2006

01

2006

04

2006

07

2006

10

Sources: N.J. DOL and U.S. DOL, December 2006.

Ind

ex:

Peak

of

Last

Bu

sin

ess

Cycle

=1.0

Employment: N.J.

Employment: U.S.

Chart 1NEW JERSEY AND U.S. EMPLOYMENT INDICES

2000 to 2006

Chart 2NEW JERSEY AND U.S. UNEMPLOYMENT RATES

2000 to 2006

The state’s populationgrew at an averageannual rate of 0.7 per-cent from 2000 to 2005.It will expand by 0.7percent a year between2005 and 2016, adding0.7 million residents. Asa result, New Jersey’spopulation will exceed 9million in 2010, andreach 9.4 million in 2016.Population growth inNew Jersey during theforecast period will con-tinue to be slower thangrowth nationwide.

R/ECON™

PAGE 2

The R/ECON™ forecast indicates that New Jersey’semployment base grew at a rate of 0.9 percent, or34,600 jobs, in 2006. With a weaker economy expectedfor the nation in 2007, job growth in New Jersey willslow further in 2007 and then average 0.9 percent ayear between 2007 and 2016. (See Table 1.)

Although the nation as a whole will add jobs fasterthan will New Jersey over the next few years, its rateof job growth will slow substantially after 2011.Through 2016, New Jersey’s share of the nation’s jobswill hover close to its current 3 percent. (See Chart 3)

Growth in national real output was more robust thangrowth in state real output in 2004 and 2005, and weexpect that to be the case over the forecast period aswell. Between 2005 and 2016, output in New Jerseywill expand by an average of 2.5 percent a year com-pared to an average of 3.1 percent a year expected forthe nation as a whole. This is due to the greater matu-rity of New Jersey’s economy and the state’s lowerrate of population growth.

The state’s consumer inflation rate rose 3.9 percent in2005, primarily due to the rapid rise in oil and naturalgas prices after Hurricanes Katrina and Rita but alsodue to supply concerns based on political problems invarious oil-producing nations. The state’s consumerinflation rate rose to 4.1 percent in 2006 with the run-up of energy prices before autumn and with increas-ing wage rates. The inflation rate will begin to fall inthe first quarter of 2007 and average 2 percent a yearbetween 2007 and 2016. Declines in the inflation ratesfor both the state and the nation to around 2 percentover the next few years assume that oil and housingprices will retreat from the highs reached in mid-2006.By late 2012, the price for West Texas Intermediate

will be under $60 per barrel, while the price of hous-ing will begin to climb in late 2007.

New Jersey’s unemployment rate averaged 4.4 percentin 2005, down substantially from the previous threeyears. The rate rose to 5.0 percent in 2006 and willcontinue to rise until 2008, with slow growth expectedfor employment, peaking at 5.6. The state’s unemploy-ment rate will then trend downward to 5 percent in2016. Although the state rate will be higher than thenational rate beginning in 2006, the two rates will startto converge in 2011. (See Chart 4.)

After two years of very slow growth during the reces-sion and recovery, personal income in New Jersey rose5.6 percent in 2004 and 5.7 percent in 2005. Incomegrowth should average 5.8 percent a year between2005 and 2016.

Chart3

Page 1

Chart 3: Employment Growth in New Jersey and the United States

1980 to 2016

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Sources: N.J. DOL, www.wnjpin.state.nj.us, December 2006: R/ECONTM, January 2007;and Global Insight, December 2006.

An

nu

alA

ve

rag

eC

ha

ng

e(%

)

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Ne

wJ

ers

ey

Jo

bs

as

aP

erc

en

to

fU

SJ

ob

s

New Jersey Growth Rate

US Growth Rate

New Jersey as a Percent of the US

Table 1

SUMMARY OF NEW JERSEY ECONOMIC FORECAST

2007

2004 2005 2006 2007 to

2016

Annual Percentage GrowthNonagricultural Employment 0.5% 1.1% 0.9% 0.6% 0.9%Real Gross State Product 3.1% 2.1% 2.3% 2.2% 2.5%Personal Income 5.6% 5.7% 6.7% 5.0% 5.7%Population 0.5% 0.4% 0.5% 0.7% 0.7%Consumer Prices 3.8% 3.9% 4.1% 1.4% 2.0%

PercentageUnemployment Rate (average) 4.9% 4.4% 5.0% 5.5% 5.3%

Source: R/ECONTM, January 2007.

Table 2

SUMMARY OF U.S. ECONOMIC FORECAST

2007

2004 2005 2006 2007 to

2016

Annual Percentage GrowthNonagricultural Employment 1.1% 1.5% 1.4% 0.9% 0.9%Real Domestic Product 3.9% 3.2% 3.3% 2.2% 2.9%Personal Income 6.2% 5.2% 6.4% 4.9% 5.4%Population 1.0% 0.9% 0.9% 0.9% 0.9%Consumer Prices 2.7% 3.4% 3.2% 1.7% 1.8%

PercentageUnemployment Rate (average) 5.5% 5.1% 4.6% 4.9% 4.7%

Sources: Global Insight, U.S. Economic Outlook, December 2006.

Table 1

SUMMARY OF NEW JERSEY ECONOMIC FORECAST

Chart 3EMPLOYMENT GROWTH IN NEW JERSEY AND THE UNITED STATES

1980 to 2016

Chart 4: New Jersey and U.S. Unemployment Rates

1990 to 2016

3

4

5

6

7

8

9

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Sources: Global Insight, December 2006, and R/ECONTM January 2007.

Un

em

plo

ym

en

tR

ate

(%)

New Jersey

US

JANUARY 2007

PAGE 3

The fastest job growth in New Jersey during theforecast period will be experienced by the fourservice sectors. They will grow at rates averagingat least 1.2 percent a year through the forecastperiod. These sectors will provide more thanseven out of ten of the state’s net new jobs dur-ing the next 10 years. The tilt of the economytoward services is not a new phenomenon inNew Jersey—during the preceding 15-year peri-od these sectors also supplied 70 percent of thestate’s new jobs.

Other bright spots in the state’s economy in theforecast period will be finance and transporta-tion. Both are high-paying sectors that will gainjobs over the forecast period. On the other hand,the construction industry, which gained jobs dur-ing the 1990s and through 2005, will lose them inthe forecast period with the slowdown in the res-idential real estate market.

Since 1990, manufacturing has lost jobs at a rateof over 3 percent a year, for a total loss of 200,000jobs. Since 2000, the information industry has lostjobs at an average annual rate of more than 5percent, yielding a total loss of 30,000 jobs overthe past 5 years. Job losses in both industries willcontinue to mount throughout the forecast peri-od, although at slower rates.

Table 1

SUMMARY OF NEW JERSEY ECONOMIC FORECAST

2007

2004 2005 2006 2007 to

2016

Annual Percentage GrowthNonagricultural Employment 0.5% 1.1% 0.9% 0.6% 0.9%Real Gross State Product 3.1% 2.1% 2.3% 2.2% 2.5%Personal Income 5.6% 5.7% 6.7% 5.0% 5.7%Population 0.5% 0.4% 0.5% 0.7% 0.7%Consumer Prices 3.8% 3.9% 4.1% 1.4% 2.0%

PercentageUnemployment Rate (average) 4.9% 4.4% 5.0% 5.5% 5.3%

Source: R/ECONTM, January 2007.

Table 2

Chart 4NEW JERSEY AND U.S. UNEMPLOYMENT RATES

1990 to 2016