NJ Employers Lost Confidence in NJ Economy Before the Attacks of Sept. 11

Even before the September 11 terror attacks, New Jersey employers as a group had lost their confidence in the state and national economies. Two-thirds of 1,600 employers participating in the New Jersey Business & Industry Association's 2002 Business Outlook Survey said their industries were already in a recession or heading into one at the time of the attacks, an NJBIA official said today in releasing the survey results.

“The terror attacks battered an economy that had already fallen to its knees,” NJBIA President Joe Gonzalez said in a Trenton news conference. “The low levels of business confidence uncovered by our survey clearly are grounded in disappointing business conditions that predated the attacks."

Collectively, the 1,600 companies participating in the Association's 43rd annual survey reported a glum outlook for sales, profits and employment in 2002, their optimism for the first half of the year falling to the lowest levels in at least eight years. The outlook for sales has fallen to second lowest level in 18 years. “A newfound pessimism has replaced last year’s durable optimism,” Gonzalez said. “One year ago, a majority of New Jersey employers had every reason to believe that the prosperous 1990s would extend into the first year of the new millennium. Unfortunately, their hopes have been dashed on the ground of an altogether different reality.”

Pessimism about future economic conditions is similar to the levels of pessimism found in the Association’s 1990 outlook survey, which was conducted at the start of that recession. The low levels of business confidence found in the current survey also bear comparison to the surveys of the early 1990s, when New Jersey was emerging slowly from the last recession.

NJBIA Executive Vice President Philip Kirschner, in presenting the policy findings of the survey, said employers are most troubled by fast-rising healthcare costs and by a property tax burden that is already the nation's highest.

"In the face of falling sales and severe price constraints, many employers are struggling just to meet their weekly payroll expenses," Kirschner said. "The message from our members to New Jersey's newly elected government leaders is exceptionally clear: lower the cost of health insurance and stabilize property taxes."

Following are some of the primary survey findings:

The business community's outlook for the state and national economies, as well as for their own industries, had softened somewhat last year but remained at optimistic levels. This year's outlook is gloomy by comparison.

Forty-two percent expect conditions to worsen for the New Jersey economy in the first six months of 2002, double the proportion of survey respondents anticipating worsening conditions last year. Thirty-six percent expect conditions to remain the same, down from 53% a year ago, and 22% expect conditions to improve, down from 26% last year. The story is similar for the national economy.

Turning now to the outlook for their “own industries,” employers as a group are more optimistic about conditions in their industries than they are about the state economy. However, on balance, they are still more pessimistic than optimistic about what they expect in the first half of 2002. One third of respondents expect conditions to worsen in their own industries, but only 28% expect conditions to improve. Four in ten employers expect conditions in their industries to stay about the same.

Employers' current pessimism is grounded in the reality of disappointing business conditions in 2001.

When the survey was conducted in September, two-thirds of respondents said their industries were already in recession (39%) or headed for recession (27%). Only one-third said their industries were expanding or recovering from recession. This is the reverse of the recession sentiment found in the survey last year, when approximately two-thirds of businesses said their industries were expanding or recovering, and only one-third reported they were in a recession or moving into recession.

Turning now to the outlook of individual companies for their sales and employment in the year ahead.

The sales outlook is bleak. The percentage of survey respondents expecting sales to rise in the year ahead has fallen to 42%, down from 56% of respondents a year ago. But the proportion expecting sales to decline has risen to 31% of companies, double last year's 15%. The proportion of companies expecting sales to remain about the same is nearly unchanged at 27%. This indicator of future business conditions has reached its second lowest level in at least 18 years. Only the Association's 1991 survey, conducted at the bottom of the last recession, contained a more pessimistic outlook for sales.

Looking at employment expectations, only 21% of employers anticipate hiring more workers in 2002, down from 30% in the previous survey year, and 13% of employers expect to shrink their workforce in 2002, up from 7% last year. Two-thirds of employers expect to keep employment stable, little changed from last year. Overall, this is the weakest employment outlook in the last eight years.

One of the most significant themes in NJBIA's 2001 outlook survey was an intensifying shortage of skilled labor that was hampering the ability of companies to expand their businesses. Eight years of steady economic expansion had ushered in what arguably had become the most acute labor shortage in 30 years. As the number of unemployed has risen in the current economic downturn, the labor markets have weakened, easing this pressure somewhat.

Seventy-three percent of survey respondents reported difficulty in finding skilled labor in 2001, down from 80% who reported this same difficulty last year. Sixty-two percent had difficulty finding professional/technical workers, down from 72%. The biggest change came in the category of managerial talent. Forty-six percent reported difficulty in finding the managers they needed, down significantly from the 59% who reported this difficulty a year ago.

With sales and profits in decline, employers are also being squeezed by their inability to raise prices.

Slightly more than one third of companies (36%) raised prices in 2001, down from 42% of companies the year before. Twelve percent lowered their prices in 2001, compared with 9% the year before, and 52% kept prices essentially the same, little changed from 50% the year before. Thus, in 2001 nearly two-thirds of survey respondents (64%) lowered their prices or left them unchanged. Nine in ten companies said they could not raise prices due to domestic competition pressures.

Finally, employers identified the rising cost of providing healthcare benefits to their employees as the biggest problem they face, followed by the cost of property taxes. When asked what should be the top priority for state government leaders, 40% said "cut healthcare costs," followed by another 13% who said "stabilize property taxes."

The results of NJBIA's 2002 Business Outlook Survey, which was conducted in mid-September, are based on responses from the first 1,600 member companies or 9 percent of the Association's 17,000 member companies, an exceptional rate of return. The respondents represent every industry and county in the state. The vast majority of respondents were small companies employing fewer than 50 people. NJBIA, with 17,000 New Jersey employers as members, is the nation's largest state-level employer association. For more information, contact Chris Biddle at 609-393-7707, ext. 227.

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Author: New Jersey Business and Industry Association