Summer is fading fast: Will NJ consumers keep spending?
Merchants down the shore have had a strong summer season, but with inflation still rising and interest rates continuing to go up there is concern New Jersey consumers may soon start limiting spending, which would slow down the whole state economy as we head into the fall season.
According to Rutgers University economist James Hughes, we are walking an economic tightrope of sorts.
He said while rents keep rising and getting a home mortgage is continuing to get more difficult we are still adding a substantial number of jobs each month.
“That means there’s additional income coming into households and individuals so there will be more money to spend just because of more people working,” he said.
"The labor market shows no real signs of collapsing anytime soon, and that’s what would cause a really bad drop in consumer spending.”
The money is running out
On the flip side, Hughes noted while many New Jerseyans had some extra savings from the rescue funds handed out in 2020 and 2021, “they are diminishing somewhat."
"The danger is they’re going to run out and people may stop spending because they don’t have that cushion," he said.
He pointed out that during the pandemic people weren’t traveling so spending shifted from experiences to buying things, particularly household furnishings, but people are once again going out and traveling, and that has caught many merchants by surprise.
“Because they were building up inventories in anticipation of a very strong holiday season, so they became overstocked and got caught by that spending shift and now we’re seeing a lot of sales,” he said.
He said another positive economic sign is “the restaurant business is enormously strong."
Why is the Fed increasing interest rates?
He said by raising interest rates the Federal Reserve is decreasing demand in the housing market, which will bring home prices down.
“If housing prices stabilize that’s going to be a force for price stability but it means a lot of people can’t buy housing," he said.
Hughes added the other way to limit inflation is to limit salary increases.
“Those pay raises enable consumers to continue spending, if you slow pay raises or compensation, you’re eventually going to slow consumption.”
David Matthau is a reporter for New Jersey 101.5. You can reach him at david.matthau@townsquaremedia.com
Click here to contact an editor about feedback or a correction for this story.