Economist Corner
January 26, 2021
5 minute read

New Jersey Gross State Product, International Trade, and Commercial Real Estate

Indicator 1 – New Jersey Private-Sector Gross State Product (GDP)


Source: Bureau of Economic Analysis

As with every state in the US, New Jersey’s economy suffered an unprecedented drop in 2020:Q2, followed by an unprecedented rebound in 2020:Q3.

Heading into Q2, with COVID-19 cases surging, New Jersey’s economy went into a virtual freeze – something with no parallel in post-WWII history. Thanks to successful efforts in the state to “flatten the curve” and a huge fiscal spending surge to support businesses and households, the economy stabilized in Q2, setting the stage for a substantial rebound in Q3.

Gross state product (GSP) – how we measure the level of economic activity for any defined period – shows New Jersey’s economy dropped at a breakneck 37 percent annualized pace in Q2. To put that decline in perspective, the next sharpest decline in New Jersey’s GSP over the past 20 years was a -9.7% annualized drop in 2008:Q4 – an undoubtedly terrible time for the economy. This latest drop was four times the magnitude of that decline.

Fortunately, the combination of economic stimulus, financial supports, and success in slowing the pace of COVID-19 infection enabled New Jersey’s economy to snap back in Q3, jumping at an incredible 41 percent annualized pace. However, even with this growth, at the end of the third quarter, New Jersey’s economy was still operating four to five percent below capacity (see difference between Q3 GDP and the GDP trend in Q3).

Of course, this is not just the case in New Jersey – the economy for the US in total is performing well below its capacity. The economy operating this far below its capacity – the gap – is a big problem. There is an empirical relationship between the size of the economy’s gap and the unemployment rate. What we have seen in recent history is a gap of four to five percent is in line with an unemployment rate of seven to eight percent. And the longer it takes to narrow and close this gap, the greater the chance of people remaining unemployed for a long period and becoming less employable. This is due to the fact that, the longer people remain unemployed, the more labor market skills they lose, causing them to be shunned by potential employers. This can also lead to people becoming discouraged to the point that they quit looking for work. That said, we expect the mix of government stimulus and effective vaccination programs get the economy to surge in 2021. Government stimulus will not only provide support to the economy during the recent COVID-19 resurgence but also provide a substantial tailwind to the economy as more people get vaccinated and more of the economy reopens. This should quickly narrow the current economic gap and get people back to work.

Indicators 2 and 3 – New Jersey Goods Trade Flows 

0125TradeFlows_left-(1).jpg 0125TradeFlows_right-(1).jpg

Source: Bureau of the Census

As with all economic shocks, the effect of the pandemic on the economy has not been even across sectors. From where we sit now, almost a year following the initial shock, it is apparent the pandemic has had a bigger impact on face-to-face services than on goods production. That said, production and goods trade have been squeezed.

Since the beginning of the 2020, there has been a scramble among analysts to find data sources that best encompass the economic impact of the pandemic on supply chains, and no metric paints a clearer picture than total trade. Many believed that total trade would take a large hit due to the interruption of supply chains caused by closures, and the data soon backed up these claims.

The figures above show the mapping of the total trade of goods in New Jersey for 2019 and 2020, which illustrate the effect of COVID’s supply-shock and our road to recovery. From February 2020 to May 2020, total trade of goods dropped 32 percent to its lowest point: $9.8 billion. Since then, there has been an increase in total trade for five consecutive months which surpassed New Jersey’s figures for the month of October 2019 by $540M and narrowed our gap from last year’s total to $12.9B. With the worst out of the way and the damage apparent, suppliers are now looking toward the future to recoup their losses and get back on track.

Indicators 4 and 5 – New Jersey Office Leasing Activity and Vacancy Rate

0125officeleasing_left-(1).jpg 0125officeleasing_right-(1).jpg

Source: CoStar

The office and retail Commercial Real Estate (CRE) markets in New Jersey were dealt a significant blow by the pandemic. Unlike the industrial market, which has not only weathered COVID-19 but even benefitted from it in some instances, government shutdowns and social-distancing practices resulted in a sharp downturn in retail and office CRE in 2020.

Prior to the pandemic, New Jersey’s office market appeared well-positioned for steady growth entering 2020. Vacancy rates in 2018 and 2019 were steady, and rents had been rising. Leasing activity had fluctuated over the prior 10 years but remained between 3M-4M sq. ft. per quarter. As seen in the chart below, COVID-19 put an end to that trend. The amount of square footage leased in 2020:Q2-2020:Q4 was 44% percent below the prior five-year average. Office vacancy rates shot higher, from around 19 percent in 2019 to above 23 percent at the end of 2020.

Indicators 6 and 7 – New Jersey Retail Leasing Activity and Vacancy Rate

0125leasing_left.jpg 0125leasing_right.jpg

 Source: CoStar

Despite the frequent commentary that e-commerce is destroying brick-and-mortar retail, retail markets in New Jersey through 2019 had been seeing some growth. Prior to the pandemic, vacancy rates had dropped statewide to 4.5 percent. The chart above shows the recent history of statewide retail vacancy rates from 2007-2021. The expectation is that vacancy will decline as businesses are allowed to reopen and operate at full capacity. The number of direct leasing deals also saw a notable decrease, especially in 2020:Q2. However, deals increased in Q3 and Q4, a positive sign for retail’s recovery from the pandemic.


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