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Deep into recovery, firms are still acting cautiously

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For small-business owners trying to gauge the direction of New Jersey’s economy, now is a particularly uncertain time, according to Joseph Seneca, an economist at Rutgers University’s Bloustein School of Planning and Public Policy.

"We're in the recovery phase of the business cycle. We have been — many people will not believe it when you say it — since June '09," Seneca said.

This may be because two crucial benchmarks hardly reflect this recovery. The state has regained just 52 percent of the private-sector jobs that it lost since the peak in the fourth quarter of 2007, while the state's gross domestic product is just above its previous peak.

"By the metrics, it's been a tepid at best recovery, but going forward, on the historical record, recoveries don't last forever, and we've already used up what's typically a recovery in regards to time," Seneca said. "This one, even though it's not very strong, is getting to be middle-aged."

While Federal Reserve Bank Chairman Ben Bernanke is focused on reducing unemployment, "conventional and unconventional monetary policy is sort of played out," Seneca said. "The payoff in terms of the economy — consumer spending, business investment spending — is small."

That has shifted the focus to fiscal policy, where the national government faces a "fiscal cliff" at the end of the year, Seneca said. Additionally, the presidential election, the state of the European Union and a slowdown in China are all major uncertainties that can hit home in New Jersey.

"That leaves small business with somewhat of a hunkering-down attitude," Seneca said. "Caution on hiring, caution on costs: They respond cautiously to increases in demand and revenue growth." These strategies "may be more applicable now, in the three-and-half-year mark, in what may be a very slow, very steady recovery," he said.

E-mail to: andrewk@njbiz.com
On Twitter: @kitchenman

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