Jennifer Spiegel & Michael Lahr, Rutgers Economic Advisory Service (R/ECON™)
The short-term prospects for the state’s economy remain quite exuberant. This is despite the arrival of the delta variant of COVID-19 in July 2021, which forced the national economy to down shift just as it seemed the pandemic was waning. Still, economic fundamentals remain strong. Consumers continue to sit on their savings. The nation’s Gross Domestic Product (GDP) is above pre-pandemic levels, although not at levels expected before the pandemic struck. And lockdowns are lifted. Indeed, people can attend entertainment venues and religious services. As the pandemic continues, the economy will continue to grow strongly through mid-2023 as it rushes to meet pre-pandemic expectations.
The economy is projected to grow because industries that are still in the process of recovering will continue to bounce back. There is pent-up demand for travel, including that of international tourists, as cross-border bans are lifted. Broadway theaters and music venues are opening up. And the burst of investment in businesses and infrastructure will undoubtedly yield increased productivity, which should neutralize the impact of inevitable upward pressure on prices. This in part assumes interest rates remain low, which would help unemployment to fall back toward pre-pandemic levels.
The pandemic has facilitated some changes that are here to stay, including the rapid wholesale shift from brick-and-mortar retail to online shopping and a grand leap in the use of credit cards as opposed to cash. But some changes we experienced are likely to languish: the upswing in home remodeling, purchases of home exercise equipment in lieu of gym memberships, and enhancements to home entertainment systems that replaced a night out at the movies. Even the purchase of small kitchen appliances will decline as families return to patronizing indoor restaurants.
Remote work, identified as a future trend as early as 1980 in Alvin Toffler’s book The Third Wave, has finally made the grade, making a large jump forward during the pandemic. It has shifted work culture. But is likely to have a long-run impact limited to a minority of the most highly-educated and well-paid workers. But even among members of this community, trust, team work, and idea generation are facilitated best some face-to-face meetings. Consequently, while there is likely to be some reduced demand for office space, it is even more likely that hybrid workplaces will arise insisting on at least occasional appearances during core hours (say 10 AM to 2 PM) and some work team’s assembling with clients at rent-by-the-hour meeting facilities.
The current set of home price rises in some neighborhoods that have been caused by the rise in remote work is in all likelihood a temporary bubble. Some of the increase in housing demand can also be attributed to the millennial generation entering the home-buying phase of their lives, as their children approach school age. Hence, this demand is likely to wane in New Jersey as population growth remains slow (half the national rate) and household size is already relatively small. Due to the home-price bubble mentioned above, a weak commercial real estate market, as well as recalling re-appraisal concerns that arose in the wake of The Great Recession, we suggest that municipalities refrain from broad-based re-assessments since the pandemic home-price spike is likely strictly short-term.
In New Jersey, the Biden administration’s infrastructure bill, if passed, will invest federal funds in transportation, environmental remediation, and new technology (including broadband access and EV charging stations for electric vehicles). The bill could also help municipalities and the State renovate airports, repair roads, mitigate floods, remove lead pipe (à la Flint, Michigan), and green homes. This boost of spending in the State especially makes the outlook for the post-pandemic economy in New Jersey look quite rosy exceeding pre-pandemic with rates of change for economic indicators like jobs, income, and GDP.
Here is a link to R/Econ’s full report, presented to the Government Officers Finance Association of NJ.