Economy

Encouraging Economic Trendlines?

While nobody knows how New Jersey’s economy will behave in 2025, some trajectories are already in motion.

By George N. Saliba, Contributing Writer On Jan 6, 2025

Against the backdrop of inflation, the Ukraine-Russia/Middle East conflicts, and a newly elected US president who is set to take office this month, uncertainty reigns for 2025’s economy. New Jersey’s economy nonetheless has trendlines: Although the state’s overall labor market has generally been slower than the nation’s, it remains a “pretty good job market,” according to James W. Hughes, PhD, university professor and dean emeritus of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. The Garden State’s information sector, professional and businesses services sectors, and trade, transportation and utilities sectors, however, have been relatively weaker, partly the result of post-pandemic over-hiring as well as general economic uncertainty.

New Jersey labor market growth and/or stable areas include: construction; professional and business services; manufacturing; financial activities; and leisure and hospitality, with the latter reflecting a consumer spending shift toward experiences rather than toward durable goods, which can require high-interest-rate financing. The health services sector is particularly robust, mirroring an aging and statistically unhealthy population that increasingly requires medical care.

“Looking ahead to 2025, [job] growth in sectors driven by technology and green energy is expected to continue, supported by investments in infrastructure and renewable energy projects,” says Jon Hirschfeld, New Jersey office managing partner for PwC. “However, labor market volatility and external economic factors could slow overall employment growth. New Jersey’s unemployment rate, while relatively aligned with national averages, could fluctuate with broader economic shifts and potential recession risks in 2025.”

The Wider NJ Economy

There are additional Garden State trends. Rutgers’ Hughes describes certain aspects of New Jersey’s 2024 economy as a “return to normal,” citing e-commerce as an example: It surged between 2021-2023, but e-commerce and the associated warehouse/distribution center market is now revealing more modest activity (some experts believe industrial real estate in the state will revive in 2025 via lower interest rates and demand for space).

Meanwhile, New Jersey’s housing market remains acutely robust as New York City residents flee quality-of-life issues, real or perceived crime, and high costs/taxes. Rutgers’ Hughes, citing an overall softening New York City office market, says, “We are seeing sort of a return to the 1950s and 1960s, where you [now] have young households, mainly millennials in the family-raising stage in the lifecycle [who are seeking homes in New Jersey]. That’s certainly going to be a key part of the housing market going forward, for the balance of the decade.” He adds that the Garden State’s suburbs are different when compared to 15 years ago and are now replete with urban amenities such as more restaurants, services and caterers. Hughes says, “The new competitive suburbia is going to continue in 2025, and that’s really an advantage for New Jersey.”

Macroeconomic Trends

Macroeconomic trends are also affecting New Jersey’s economy. Inflation has been ameliorating, although it remains sustained, and any interest rate changes via the Federal Reserve may take a year or longer to reveal their ultimate effects.

“Inflation, which has eased slightly in 2024, could stabilize or rise again depending on many factors, including global supply chain recovery and geopolitical events,” PwC’s Hirschfeld says. “Interest rates, which the Federal Reserve recently cut to ease economic pressures, are likely to remain a critical tool in managing inflation through 2025. Economic uncertainty, especially driven by geopolitical unknowns, makes it difficult to predict, but some forecasts expect cautious monetary policy with executives reporting in PwC’s recent Pulse Survey that they’ll continue to invest at current levels or increase their investments in many areas regardless of who becomes president.”

Rutgers’ Hughes more broadly says, “I think the Federal Reserve has been able to create this historic soft landing of slowing the economy, but not tipping it into recession, and bringing inflation down to where it should be. … Right now, it looks like a ‘no landing economy’ – that we’re not even going to have to land. We are going to keep floating.”

ADP’s Chief Economist and ESG Officer Nela Richardson, PhD, highlights a direct connection between the labor market and interest rates. She says, “Firms of all sizes have to make capital plans and hiring plans, and it’s hard to make those plans without knowing the cost of capital and not knowing – especially for small firms that have to grow sometimes by taking out bank loans – how much those financing costs are going to be.” She adds that Federal Reserve interest rate cuts signaled to companies that it was acceptable to form plans, and that this induced nationwide October hiring.

Medical and Energy Costs

The economy is not without distinct challenges, however: According to PwC, medical cost growth in 2025 is expected to rise to its highest level in 13 years in the US, fueled by inflationary pressure, prescription drug spending and behavioral health utilization. “New Jersey won’t escape the impact of these trends,” PwC’s Hirschfeld explains.

Energy prices are simultaneously expected to rise. Experts say New Jersey residents should brace for spiking utility rates in 2025 and 2026 following PJM Interconnection’s (“PJM”) last capacity auction, which resulted in higher prices when compared to last year due to declining electricity supply alongside increased demand and market rule changes.

President Donald J. Trump

The US presidential election may also impact the economy, with Donald J. Trump set to take office later this month. Trump has proposed tariffs on foreign goods, a move that proponents say will increase US government revenue and bolster American businesses. Critics say that tariffs will burden US companies that import goods from abroad and also raise inflation.

Hughes comments, “We’re in uncharted waters right now, and that’s the statement forecasters usually make when that they don’t want to admit we don’t have a clue. We don’t really know what’s going to happen because there [could be] differences between what has been proposed – the tariffs, lower tax rates and the like – and if they will be [enacted the same way].

“Then, the question is, ‘What will be the impact of those newly enacted [Trump] policies?’ Will tariffs be inflationary and cause problems? Will it create barriers for those that are being subject to the tariffs? Will inflation be countered by perhaps a rising value of the dollar, making it cheaper to import, even with the tariffs?”

Trump has additionally proposed extending portions of the 2017 tax cut set to expire in 2025 as well as more cuts in the corporate tax. Under Trump, Social Security benefits could potentially be exempt from federal taxes, and he has also proposed eliminating taxes on tipped wages, such as for bartenders. Further, Trump has floated reducing a wide range of regulations in what is often viewed as a business-friendly approach.

Conclusion

Overall, while the nation and New Jersey have economic patterns in 2024 that could extend into 2025, too many variables exist for sure-fire prognostications. Even on the point of interest rates, Rutgers’ Hughes concludes, “The economic landscape is littered with the corpses of interest rate forecasters whose forecasts went awry.”

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