New Jersey's economy has entered a sluggish period of slow growth

BYLINE: Michael L. Diamond, Asbury Park Press, N.J.

Mar. 18--New Jersey's economy has one commodity of which there is never a shortage: complaints.

The state's cost of living is too high. Its government is unwieldy. Its job market is falling behind the pack. The jobs being created here aren't paying very much.

"Obviously, it's not easy" to work in New Jersey, said Jon Sauer, a contract administrator for Rabco Equipment Corp., a Howell company that makes lockers and furniture for schools. "It seems like every two years, there's a new certificate that's required to do business in this state, and every certificate costs $200."

Turning the complaints into praise won't be easy in 2007. The New Jersey economy, already suffering from below-average job growth, now must contend with an economic slowdown nationwide and a continuing uncertain real estate market.

That's not to say there aren't reasons for hope. The state's well-educated work force remains a draw for employers. Its wealthy residents attract banks and retailers. The Breeders' Cup, a renowned thoroughbred racing event, comes to Monmouth Park in October, promising a windfall for the Shore.

But the state's economic problems run deep and can't be fixed easily, experts said.

"New Jersey is in a sluggish period, and I don't see how that's going to change a whole lot during the course of this year," said Joel Naroff, chief economist with Cherry Hill-based Commerce Bancorp. "There are constraints operating there."

Not long ago, New Jersey's economy was widely praised as a center for innovation in the technology and pharmaceutical industries and a place where corporations were eager to set up shop.

But the state's economy this decade has run aground. The telecommunications sector collapsed to the point that Lucent Technologies Inc. was bought by a French company and AT&T Corp. was bought by a Texas company. The Sept. 11, 2001, terrorist attacks sent the economy temporarily reeling. And the state became unaffordable during a time when many companies were searching for low-cost land and labor.

Adding to the mix: State government under former Gov. McGreevey raised business taxes and fees to try to keep up with rising government spending -- a move economists said made the state less competitive.

Gov. Corzine has reduced or eliminated some of those taxes, although he increased the sales tax last year to balance the budget.

"I think New Jersey really ought to get out and try to make it a business-friendly climate for these companies so they'll stay," said Patrick Kelly, 51, of Hazlet.

Kelly's concerns that businesses are abandoning the state might be warranted. New Jersey created 33,900 jobs in 2006, up from the 28,200 created in 2005, but far less than the 82,500 created on average annually from 1996-2000, according to the state Department of Labor and Workforce Development.

By comparison, the nation added 2.2 million jobs last year. Since New Jersey represents 3 percent of the labor force, it should have created more than 67,000 jobs.

In the global economy, competition for jobs is intense. Nevada recently ran an advertisement in New Jersey newspapers that promoted its business-friendly environment: Little government regulation and no corporate or personal income tax.

If Nevada's costs are too high, there's always overseas. Eatontown-based Quintum Technologies Inc., a fast-growing telecommunications company, recently opened an office with four employees in Chennai, India.

Company spokesman Chuck Rutledge said India offered lower operating costs and allowed the company to test its products around the clock. Since Quintum sells its products worldwide, location isn't much of an issue.

Opening in India "was done (virtually) overnight," Rutledge said. "It didn't take a lot of planning."

New Jersey's outlook this year is less than rosy. The U.S. economy is slowing, and some experts have said it might slip into a recession. The Shore's residential real estate industry, which was red-hot earlier in the decade, declined last year and is still uncertain.

At a Rutgers University conference in January, Jeffrey Otteau, president of the Otteau Valuation Group, a real-estate consulting business in East Brunswick, laid out the problem: From 2000 to 2005, median income rose 16 percent and median home prices rose 87 percent. Those two figures were so out-of-balance that no typically paid New Jersey worker could afford a median-priced home, he said.

New Jersey's economic troubles have had business groups criticizing the state government for creating an uncompetitive environment and having few plans to catch up with the rest of the country.

But Corzine, a former Goldman Sachs executive, has soothed at least some of their concerns.

Corzine in September outlined an economic development strategy and pledged to put the issue at the top of his agenda. And he took credit for several corporate relocations and expansions in New Jersey: Verizon Communications Inc., Bayer Pharmaceutical and Campbell Soup Co.

"The attitude toward business is changing" for the better, said Philip Kirschner, president of the New Jersey Business and Industry Association, the state's biggest business lobbying group. But "I think the business community is in a show-me type mode. They're looking to see actual decisions and actions done that improve the business climate."

How will the year play out? Here's a look:

--Northern Monmouth

Northern Monmouth County has gone through perhaps the biggest transition at the Shore, but it has two qualities that experts say can lead the state out of its doldrums -- a talented labor force and wealth.

While the region's economy suffered when Lucent laid off thousands of workers in Holmdel the past seven years, other companies, such as Quintum, are emerging in part because the region is home to high-tech workers.

Other business owners said they have benefited from affluent consumers who have continued to spend freely. Tom DeFelice, owner of Circle BMW in Eatontown, said sales of high-end cars have been strong. He said he expects to sell about 25 percent more cars in 2007.

"You see how bad things are and what's happening overseas (in Iraq), but the economy is still doing well based on what we're doing," DeFelice said.

--Western Monmouth

Western Monmouth County, a retail center, has a close eye on consumer spending. And the most recent surveys of that are mixed. One index published by the University of Michigan showed consumer confidence plunged in February. Another by the Conference Board showed confidence soared, Naroff noted.

Regardless, retailers plan to expand in 2007, particularly along Route 9.

Supermarket giant Costco Wholesale Corp. has applied to build a 145,000-square-foot store in Marlboro. That would be the Issaquah, Wash.-based company's fourth store in Monmouth and Ocean counties.

And Freehold Raceway Mall plans to add three buildings with enough room for about 15 stores and two restaurants. The first phase is scheduled to open before Christmas.

"It will help with the social atmosphere of shopping, (which is important because) shopping is social," mall spokeswoman Debra Panzarella said. "By expanding the mall, we're able to bring the stores our guests have been asking for, restaurants being number one."

--Coastal Monmouth

Coastal Monmouth's tourism industry will rise or fall -- as it does every year -- based on the weather. But Matthew Schmid, owner of Villa Park House, a bed & breakfast in Spring Lake, said he keeps a close eye on other factors as well.

For example: If gasoline prices soar this summer as they did last year, tourists may opt to drive to the Jersey Shore rather than take a longer trip to, say, North Carolina.

There is one sure bet. The Breeders' Cup in October will pump millions into the local economy.

"That should do a lot for all of us," Schmid said.

--Northern Ocean

Northern Ocean County has become one of the state's more affordable places. As a result, it has drawn a mix of retail, real estate and even manufacturing companies.

Yet here, as in most of New Jersey, the service industry dominates. Netcetra, an Internet marketing company in Brick, has seven employees. And it is growing as small business owners decide they need to reach customers through the Internet, said Jim Mahlmann, the company's president.

"The economy is shifting more and more to the Internet, and (business owners) realize their Web sites have to be found," Mahlmann said.

--Southern Ocean

Southern Ocean County's economy has been growing rapidly, thanks to new home construction. But that industry slumped in 2006. Kara Homes Inc., one of the region's biggest home builders, filed for Chapter 11 bankruptcy in October. Builders such as Hovnanian Enterprises Inc. and Toll Brothers Inc. have said they haven't seen signs of recovery.

It could have meant trouble for smaller contractors as well. But John Lorton, a general contractor based in Lacey, said he simply switched gears from new construction to renovations and additions.

It is a sign that to find success in 2007, consumers will have to be resilient and businesses will have to be versatile. But Lorton said that shouldn't be a problem.

"We've always been versatile," Lorton said. "We've been in business since '84. We've always found when the new housing industry slumps, the addition business picks up."

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