The Silent Depression Creeping In: How Economic Doldrums Are Impacting New Jersey
Are we already seeing modern day ‘Hoovervilles’?
The State of the Economy: Entering a Silent Depression?
The US economy has been showing signs of weakness lately, leading many economists to warn that we may be entering a recession. However, this time the downturn is manifesting itself in a more subtle way, leading some to refer to it as a “silent depression.” In this blog post, we’ll break down what’s going on with the economy, what a silent depression is, and how it’s impacting the state of New Jersey.
What is a Silent Depression?
A silent depression is a period of economic decline that doesn’t quite reach the technical definition of a recession, but still leads to high unemployment, falling incomes, and difficult times for businesses and consumers. Unlike a traditional recession, GDP may continue to grow slightly during a silent depression, even as other indicators get worse. The “silent” descriptor comes from the fact that the downturn happens gradually, without any major shocks or crises marking its onset.
Some key characteristics of the current silent depression include:
High inflation eroding consumer purchasing power
Declining industrial production and capacity utilization
Bear market in stocks and other financial assets
Businesses cutting costs and jobs
Stagnant or falling real wages
Consumers pulling back spending out of caution
While the economy continues to grow slightly overall, the impacts of high inflation and slowing demand are squeezing businesses and households financially. It’s not an acute crisis, but rather a gradual tightening that causes a persistent malaise.
Impact on New Jersey
New Jersey has not been immune to the Silent Depression of 2023. As a state with a large manufacturing sector, it has been impacted by the declines in industrial production nationally. Manufacturing production in NJ dropped 2.8% from Q1 to Q2 of 2022, and continued to decline in the second half of the year. At the same time, the state's chemical plants, refineries, and fuel distributors are seeing declining sales and profits as demand cools.
Like the rest of the country, NJ is suffering from high inflation that is driving up costs for businesses and reducing consumer demand. Prices in the NY-NJ metropolitan area are up 8.7% over the past year, according to the Bureau of Labor Statistics. Food, housing, and gas prices in particular are putting a squeeze on household budgets.
New Jersey's unemployment rate ticked up to 4.7% in July 2023, indicating slowing business activity. Some prominent NJ companies like Prudential, Bed Bath & Beyond, and others have announced layoffs recently. Job growth is expected to stagnate or even turn negative if the Silent Depression continues.
The Silent Depression is having a significant impact on the New Jersey economy. It is making it difficult for businesses to stay afloat and for consumers to afford basic necessities. The state government needs to take action to address the Silent Depression, such as investing in infrastructure, providing tax breaks to small businesses, and expanding access to affordable housing and healthcare.
The state government will likely see lower tax revenues as economic activity slows. That may mean cuts to services and benefits if the downturn persists. It also reduces the ability to fund infrastructure projects and other government initiatives.
On the bright side, New Jersey entered this downturn with a budget surplus and billions in federal pandemic aid still to be spent. The state has some buffer to help weather the silent depression storm. But continued weakness in the national and global economy will be a headwind for the state regardless.
Outlook Going Forward
It remains to be seen whether the US will tip into a full-blown recession or whether the silent depression will persist at its current mild level. Much depends on whether the Federal Reserve can tame inflation without going too far. The Fed’s rate hikes slow the economy by design, but carry the risk of overcorrecting into excess weakness.
New Jersey will have to brace itself for either scenario. The state can continue adding to its surplus where possible as a cushion against a worse downturn. Supporting critical industries and small businesses will also help ensure the state weathers the storm. Individuals should assess their own vulnerability and make defensive moves like paying down debts or cutting discretionary spending where prudent.
While not an acute crisis, the silent depression represents a real challenge for the economy. Being alert to the risks and positioning oneself defensively are the best strategies for getting through it in decent shape. With wisdom and care, New Jersey and the country can navigate these choppy waters and emerge stronger when more normal growth returns.
