Southern Ocean State of the Chamber

2018 Economic Forecast Stable, Long-Term Viability Questioned

Jan 17, 2018

In delivering the economic forecast for this year, economist Joel Naroff advised regional small-business owners to be cautious over the next 24 months as a recent federal tax bill will provide short-term relief, but leaves long-term sustainability unstable.

“The last time I was here the economy was a total mess,” Naroff, told about a hundred members of the Southern Ocean Chamber of Commerce at its annual State of the Chamber meeting last week at the Holiday Inn in Manahawkin. “Well, it’s a strange year to be an economist.” 

Holder of a Ph.D, he is often quoted in NewsweekThe Wall Street JournalThe New York TimesUSA Today and Business Week. Internationally, British, French, Italian, Japanese, Spanish, Brazilian and Chilean news agencies cite his materials. He appears frequently on CNBC, Fox Business News and Bloomberg Television. In addition, he has been on “ABC’s World News Tonight” and “The News Hour with Jim Lehrer.”

The national economy, according to Naroff, is in the best shape it’s been in more than a decade.

“We have been growing at our potential,” he said, explaining the growth rate is based on productivity, meaning how quickly a product can get to market, or labor force growth. There have been years that productivity growth has been close to zero, he said. With the unemployment rate expected to reach lows not seen in about five decades, there is almost no room for additional labor force growth, Naroff said. “We can’t continue to go on at this pace.”

Even aside from the low unemployment rate, businesses find it difficult to hire qualified workers. Drug and background tests, which are now requirements across most industries, take a high percentage of workers out of the game because they don’t meet the standards, he said.

“We have a problem,” Naroff said, explaining not having enough qualified workers drives up the demand for such employees, which in turn forces a wages bidding war, and that creates the threat of inflation. “Tax cuts should be when the economy needs to be kicked in the ass.”

That isn’t the case, according to Naroff, adding the country is slated to hit its third largest growth expansion in June.

“There are a lot of tax cuts,” he said. “What businesses will do with them is uncertain. A bonus is nice, but it isn’t an increase in wages. The small-business community was not positively impacted.”

So, what does it mean at the state and the local level? At least 5 percent of those impacted are individuals with second homes in New Jersey, which is a concern in a resort area, Naroff explained.

“It lowers the demand and the prices” for real estate, he said. “When the costs increase, it makes more sense to rent than to buy.”

Naroff said the tax bill did “no favors for this area for real estate. That’s the reality. I don't know how long that’s going to take to kick in.”

On the other hand, he said,  just because people aren’t buying doesn’t mean they are staying away from the Jersey Shore.

“Most people will see an increase in their incomes,” Naroff said. “New Jersey is ground zero for the negative impact of the tax bill. The state economy is a mess. The state won’t grow at the national level.”

Still, while there are significant questions about the second housing market, he said there are no current indicators that the hospitality sector, such as hotels, motels and campgrounds, won’t do well.

Gov. Phil Murphy has three ways to change the state economy, Naroff said. He can enact the millionaire tax, approve the legalization of marijuana, and implement a $15 minimum wage.

“It will occur,” Naroff said of the minimum wage, adding, “it will kill businesses here (if it comes into effect all at once). Small businesses can’t afford it.”

He said he hopes the governor opts for a long-term phase-in period, but in the end it’s a political decision.

Even with all the contradictions, Naroff predicts a solid 2018 for most people, though he predicts a recession beginning in the second half of 2019.

Gina G. Scala

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