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Outside of Jersey City
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October 6, 2008 19:11:26
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New Jersey Offers a Preview of Possible Economic Woes to Come
By PATRICK McGEEHAN
Published: October 5, 2008
WHIPPANY, N.J. — After several tumultuous weeks on Wall Street, New York City seems increasingly likely to fall into recession, many economists and analysts say. To get a sense of what that might look like, one need only cross the Hudson River.
New Jersey’s economy has already slipped into reverse. Its biggest employers have stopped hiring, and some have started firing. Its unemployment rate is rising fast, and the values of its houses are falling even faster. The state government is grappling with a projected budget shortfall of $1.7 billion, and some of its most affluent counties and towns are reducing services as tax revenue declines.
A state filled with suburbs, it has been struggling with the same problems that high fuel prices and a crumbling housing market have posed to broad swaths of the country. But its woes have been compounded by a series of cutbacks and mergers among the big drug-making companies that have formed one of the state’s economic pillars. Now state and local officials are worrying about the wholesale restructuring of the financial services industry, which provides tens of thousands of high-paying jobs to New Jersey residents who commute to New York City and employs about 260,000 others in bank offices in Jersey City and on corporate campuses around the state.
“On Main Street, a recession has long ago hit,” Gov. Jon S. Corzine said after meeting with a group of business leaders last week. “Our economy has a very strong bias toward the success of financial services, so that means that we are vulnerable.”
Alarmed about the near-daily announcements of problems in the pharmaceutical and financial services industries, the State Assembly will hold hearings on Monday on bills that would provide tax breaks to businesses and financial relief to strapped homeowners.
The downturn has already upended a long period of prosperity in some affluent communities like the Whippany section of Hanover Township, in Morris County.
Perched on a pink vinyl seat in the first booth of his roadside diner here, Gus Thermenos can hear and feel the financial fear gripping his customers. They stop in less often these days, he said, and when they do, they banter about pulling their savings out of the stock market and ask whether he plans to raise the prices of the comfort food offered on his plastic-coated menus.
“People you used to see every night now come in only two, three nights a week,” said Mr. Thermenos, 34, who has operated the diner for more than five years.
A foursome of men who worked at the nearby campus of Bear Stearns had been lunchtime regulars, Mr. Thermenos said, gesturing toward an empty booth over his shoulder. But they stopped coming a few months ago, not long after Bear Stearns was rescued from near collapse by JPMorgan Chase & Company.
“Three of them got laid off,” he said.
By several measures, New Jersey’s economy is weaker than New York’s. Employment in the state began tumbling several months ago, even as it continued to grow in New York, said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. This year alone, New Jersey has lost nearly 7,000 jobs and its unemployment rate has risen to 5.9 percent, from 4.2 percent, according to the state labor department.
And while analysts at Moody’s Economy.com say New Jersey fell into recession over the summer, New York has avoided it, so far.
“It really is difficult to point to other weaknesses in New York City’s economy outside of what’s going on on Wall Street,” said Marisa DiNatale, a senior economist at Economy.com. “North Jersey never saw the boom in finance that Manhattan did.”
The plunging market for houses in New Jersey is an additional weight that has not been felt as deeply in the city, especially Manhattan, where apartment prices have only recently leveled off. Ms. DiNatale said prices of single-family homes in the suburbs surrounding the city, however, had dropped by 9 percent through the first half of this year, and she predicted they will have fallen by about 30 percent by next summer.
New Jersey’s mixture of high finance and big pharmaceutical companies, which once were its pride and joy, is threatening to put a double whammy on the state.
With fewer blockbuster prescription medicines in their pipelines, drug makers have been consolidating and eliminating jobs. Last week, for instance, Pfizer said that it would stop developing drugs to treat heart disease. Changes like that are expected to disproportionately affect New Jersey, where the industry employs about 70,000 workers, including the senior executives of several of the world’s biggest and most profitable pharmaceutical companies.
Schering-Plough, whose headquarters are in Kenilworth, is in the process of cutting 5,500 jobs, one-tenth of its total work force. Last month, it said that the layoffs would include 1,000 sales representatives. Ortho Biotech, a division of Johnson & Johnson, warned the state of plans to reorganize that could affect 550 jobs in Bridgewater.
Still, the state’s labor commissioner, David J. Socolow, said many workers who have lost jobs at big drug makers have found positions with smaller biotech companies. But he said that the state was facing serious problems from the downturn in the financial markets, the housing market, construction and related industries.
Indeed, with the stalling of the residential building boom that has helped fuel New Jersey’s economy since the mid-1990s, there are now almost 5,000 fewer construction jobs in the state than in August 2007.
Even the public sector has started to shrink as Governor Corzine wrestles with a revenue shortfall. His latest budget was smaller than the previous one by $600 million, and he has pledged to reduce the state’s payroll by more than 2,000 workers. County and municipal officials are in similar straits. In Morris County, one of the wealthiest in the state, freeholders are considering laying off county workers, said Ronald F. Francioli, the mayor of Hanover Township. The town council he leads may have to do likewise, he said.
“This is probably the most difficult time for Hanover that I have ever seen,” said Mr. Francioli, who has been mayor for 15 years. “In the longer term, it’s going to get worse for Hanover before it gets better. I don’t think we’re seeing the bottom of it yet.”
Hanover, whose two sections are known as Whippany and Cedar Knolls, was already reeling from the loss of its biggest taxpayer. Lucent, a telecommunications company spun off from the AT&T Corporation and later bought by Alcatel of France, said in May that it would move out of its campus just around the bend from the Whippany Diner, Mr. Thermenos’s place.
That news came as Bear Stearns, which had employed about 1,000 people in four unmarked buildings in a guarded complex, began transferring jobs to Delaware, Mr. Francioli said. Then, a few weeks ago, a third company that was a big taxpayer in town, Abbott Laboratories, notified local officials that it would be shutting a drug-making plant across the street from the town hall, he said.
“No. 1, No. 2, No. 3,” Mr. Francioli said, ticking off the blows the town’s budget would suffer. “We’re not feeling the full brunt of the impact yet. Hanover is holding its breath through 2008.”
With a weak market for the town houses they planned to build and sell, developers are now seeking to switch to rental apartments, he said. And the town council is having to reconsider its steadfast aversion to big-box stores, like wholesale clubs, because that is one type of building still in demand.
Morris County has more than enough office buildings. Its highways are lined with signs advertising blocks of space. Nearly one-fourth of its office space is vacant, some of it never having been occupied, according to Maggie Peters, executive director of the Morris County Economic Development Corporation.
Ms. Peters said she feared that even more might empty out as financial companies responded to the sharp decline in their fortunes. “Do I think Merrill Lynch is going to downsize or move? Yes, I do,” she said.
But she added that other companies, even some from Wall Street, had been expanding in the county. “We’re seeing more downsizings but not as many as other places in New Jersey.”
At the Whippany Diner, Mr. Thermenos is holding out hope for an economic rebound after the November election. His business usually picks up after the winter months, but this year it never did, he said. After he raised his prices in May, his customer count declined and he had to dismiss a couple of his workers, he said.
With one young child and a second on the way, Mr. Thermenos was also fretting about the falling value of the house he bought in Hackettstown, about 20 miles west. After paying about $500,000 two years ago, he said, it was unsettling to see similar houses now being listed for $400,000 to $425,000.
“How could you know?” Mr. Thermenos said. “We didn’t see this coming.”
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