NYC Office of the Comptroller
Alan G. Hevesi, Comptroller
1 Centre Street, NY, NY 10007
Vol. VII, No. 4, August 1999

NYC’S ECONOMY IN 2Q99: SLOWER GROWTH

SUMMARY: In second-quarter 1999, four of New York City’s five key indicators deteriorated. However, by historical standards the economy remained strong and the personal-income-tax (PIT) indicator is negative for an economically beneficial reason, i.e., the 1998 end of the 12.5 percent PIT surcharge. July showed renewed strength.

• Gross City Product (GCP), adjusted for inflation, grew at an annual rate of 2.2 percent in 2Q99, slightly below the national growth rate. (See Summary Table below.)

• Payroll Jobs, based on preliminary data, were up by a seasonally adjusted 12,800 in 2Q99, below the 28,100-jobs growth in 1Q99. Private-sector jobs increased by 11,000 in 2Q99, which was down from 28,600 in 1Q99. NYC job growth was 1.4 percent for the quarter, behind the nation’s 1.9 percent. July added 14,200 private jobs.

• PIT revenues, which are a reasonable proxy for personal incomes in the absence of tax rate changes, rose 4.9 percent in 2Q99 after adjusting for the end of the 12.5 percent PIT surcharge (which cost the City $83 million in the quarter). This compares with the spectacular 20.8 percent PIT growth in 2Q98.

• The Inflation Rate for the NYC metro area was 1.9 percent, lower than the average U.S. rate of 2.1 percent.

• The Unemployment Rate in the City in 2Q99 dropped to 6.6 percent, the lowest since 5.8 percent in 1Q89, and the strongest indicator for the quarter, but still well above the U.S. rate of 4.3 percent. The City’s labor-force participation rate was 57.7 percent in 2Q99, lower than the 57.9 percent in 1Q99, and below the national rate of 67.1 percent. The employment/population ratio rose to 53.9 percent in 2Q99, up from 53.7 percent in the 1Q99, but still well below the national rate of 64.2 percent. In July, unemployment was back up to 7 percent.

Summary Table. Five Key Economic Indicators, NYC and U.S., 2Q99, and 1^st Half of 1999*

4. * B=Better than prior period. N=No change. W=Worse. Indicators 1, 2, and 5 compare 2Q99 with 1Q99. Indicators 3-4 compare 2Q99 with 2Q98. Annual changes average monthly data (or quarterly data for gross product). Sources: See Charts 1, 2, 4, 6, 8.

** Adjusted by the Comptroller’s Office for the December 1998 end of the 12.5 percent PIT surcharge, based on data from NYC OMB.

• Other Indicators were mixed in 2Q99. Manhattan commercial rental rates were up to $38.60/sq. ft. in 2Q99, up 24.1 percent over 2Q98. The help-wanted-ad index and initial unemployment claims deteriorated in 2Q99, but the number of building permits authorized improved. Taken together, the indicators suggest that the City’s growth has slowed and the immediate outlook is for continued but more moderate growth.

The U.S. economic expansion that started in February of 1991 is showing some signs of slowdown in the second quarter of 1999, with the weakest GDP growth in a year. NYC’s growth streak, of shorter duration, also paused. While signs of heavy demand for labor appear in wage growth and declining unemployment rates, NYC’s unemployment rate is still relatively high. The best news is that price inflation continues to be low at both the national and local levels.

1. Gross City Product

GCP, the total output of goods and services in the City, grew at an annualized rate of 2.2 percent in second-quarter 1999, slightly below 2.3 percent in the nation but significantly below NYC’s 4.7 percent rate in the first quarter. (See Chart 1.)

Chart 1. Real GCP and GDP, Percent Change, Annual Rate, Quarterly, 1995-1999



Source: GDP data from U.S. Department of Commerce. NYC GCP estimates are by the NYC Comptroller’s Office and are preliminary for the latest quarter.

The slow growth in GCP reflects a significant slowdown in job gains and a recent fall in income as estimated by growth in the personal income tax and the general sales tax. The factors behind the slow GDP were weak consumer spending, a drop in government spending, and widening of the trade gap. Personal consumption expenditures rose at an annual rate of 4 percent in the second quarter, compared with 6.7 percent in the first quarter. Government spending fell 1.2 percent in the second quarter compared with the 4.2 percent rise in the first quarter. The net trade deficit grew to $323 billion in the second quarter, compared with $303.6 billion in the first quarter.

During the first half of 1997, GCP grew at a 3.5 percent rate, faster than the nation’s 3.3 percent. However, this first-half growth is slower than in the previous three years, for both the City and the nation.

Finally, the GDP price deflator grew at an annualized rate of 1.6 percent, the highest since 1.7 percent in second-quarter 1997. This is an inflationary sign, reflecting a rise in the price of oil.

2. Jobs

Jobs in the City grew at a slower rate in the second quarter of 1999 than in the first. City establishments added 12,800 seasonally adjusted jobs in the second quarter of 1999, less than half the increase of 28,100 jobs in the first quarter. The private sector added 11,000 jobs and the public sector added 1,800 jobs. Manufacturing recorded a loss of 4,200 jobs in the quarter, nearly matching the loss of the same quarter in 1998. Construction and transportation and utilities together showed an increase of 500 jobs for the quarter. Trade was up by 3,400 jobs, mostly in the retail sector, which was up 2,700. The FIRE (finance, insurance, and real estate) sector was up by 200 jobs, as a 400-job growth in real estate and a 1,000-job increase in securities were offset by a 1,100-job loss in banking. The big winner of the quarter was again services, which enjoyed an increase of 11,200 jobs, of which 1,300 were in eating and drinking establishments, 1,800 in social services, 1,900 in health services, and a remarkable 5,400 were in business services. Business services include advertising, credit reporting, collection of claims, mailing, reproduction, stenographic services, news syndicates, computer programming, photocopying, duplicating, data processing, services to buildings, and temporary staffing services. Motion pictures were flat for the quarter after a big 5,400-job jump in the previous two quarters. Legal services were up 300 jobs, and engineering and management 600 jobs. The government sector’s 1,800-job increase was made up of a 400-job loss in the Federal Government, a 100-job loss for the State, and a 2,200-job increase in local government (the City itself and authorities such as the MTA). However, local government jobs are still 200 below what they were a year earlier. (See Chart 2.)

Chart 2. NYC Job Growth, ’000, and Annualized Percent Change, Seas. Adjusted,
2Q99/1Q99 and 1Q99/4Q98



Source: NYS Department of Labor. Quarterly seasonal adjustments are by the NYC Comptroller’s Office. The 1999 numbers are preliminary.

NYC jobs grew more slowly than U.S. jobs. During second-quarter 1999, seasonally adjusted payroll jobs grew 1.4 percent in the City compared with 1.9 percent in the United States. (In the first quarter, the City’s job growth was above that of the United States for the second quarter in a row, the first time this has happened in more than a decade.) During the first quarter of 1999, payroll jobs in the City grew 3.2 percent compared with 2.5 percent in the nation.

Compared with 19 other metro areas and the U.S. average, NYC’s year-over-year job growth of 2.1 percent ranked ninth. The U.S. average was 2.2 percent. (See Chart 3.)

Chart 3. Job Growth, 20 Largest Metro Areas and U.S. Average, Percent Change, 2Q99 over 2Q98



Source: U.S. Bureau of Labor Statistics. Where available, data are for the entire metro areas (MSAs or PMSAs). In three cases (Baltimore, NYC, and Philadelphia), metro data are unavailable and city data are used.

July jobs, which were released on August 19^th, show a strong rebound in job growth. The private sector added 14,200 jobs and the public sector added 8,600 jobs for a total of 22,800 jobs, after adjusting for seasonal fluctuations. The City’s job growth in July, which was 7.8 percent, was significantly above the U.S. job growth of 2.9 percent. This 4.9 percentage-point margin is the widest monthly margin since a 5.1 percentage-point margin in January 1999.

July job gains occurred across the board: Services were up by 7,200 jobs; trade by 3,100 jobs; construction by 1,700 jobs; manufacturing by 1,000 jobs; FIRE by 700 jobs; and transportation and utilities by 600 jobs.

3. Incomes

Since total personal income for the City is reported with a two-year lag and wages are reported with a lag of about three quarters, personal income tax (PIT) revenue is used as a proxy for recent incomes and wages. PIT components, withholding and estimated taxes, grew less rapidly in second-quarter 1999 than in second-quarter 1998. Total PIT revenue actually declined 0.17 percent in the second quarter, largely the result of the elimination of the 12.5 percent PIT surcharge at the end of 1998. The loss of tax revenue due to expiration of this surcharge amounted to $83 million in the second quarter of 1999. Had this surcharge continued to be in effect, in other words, PIT would be up by 4.9 percent. This contrasts with the record second-quarter 1998 PIT growth of 20.79 percent. Estimated taxes (not adjusted for the end of the surcharge) rose 9.49 percent in second-quarter 1999, compared with 34.19 percent in second-quarter 1998. Withholding taxes (also unadjusted) rose 0.38 percent in second-quarter 1999, compared with a 13.01 percent increase in second-quarter 1998. (See Chart 4.)

Chart 4. Personal Income Taxes, Year-over-Year Percent Change, 2Q99 over 2Q98



*PIT growth in 2Q99 over 2Q98 is increased by $83 million to account for the ending of the 12.5 percent PIT surcharge in December 1998. No attempt was made to estimate the adjusted change in withholding and estimated PIT, because the distribution of the surcharge between the two categories is not known; also, the adjusted levels of two components are not as useful to know in the context of this report than the total.

Source: NYC Comptroller’s Office, based on data from the NYS Department of Taxation and Finance and NYC OMB.

Another indicator of changes in total income is the average hourly wage. Second-quarter 1999 average hourly wages grew more than second-quarter 1998. The average hourly wage for construction workers rose the most, 6.2 percent, followed by wholesale and retail trade, 5.4 percent. The growth in average hourly wages during second-quarter 1999 compared with second-quarter 1998 is a key measure of wage growth. (See Chart 5, next page.)

3. Inflation

On a year-over-year basis, the NY-Northeastern NJ inflation rate rose in second quarter, but still remained below 2.0 percent. Second-quarter 1.9 percent inflation was the highest since the 2.2 percent rate in fourth-quarter 1997. The core inflation rate, which excludes all items less food and energy, rose 1.8 percent. The inflation rate average was composed of a 3.7 percent rise in medical care, a 3.0 percent rise in food and beverages, a 2.0 percent rise in services, a 2.1 percent rise in housing, and a 0.2 percent rise transportation prices. On the other hand, apparel and upkeep fell 1.9 percent, and energy prices fell 0.2 percent. The City’s 1.9 percent inflation rate in the second quarter was above the 1.5 percent in first-quarter 1999, but lower than the U.S. urban average inflation rate of 2.1 percent. (See Chart 6, next page.)

Chart 5. Average Hourly Wages for Selected Industries, NYC, 2Q99 over 2Q98



Source: NYS Department of Labor, which does not publish comparable data for higher-level salaried staff.

Chart 6. Inflation Rates, NYC, U.S., and NYC Less U.S., Monthly, Year-over-Year, 1987-1999



Source: U.S. Bureau of Labor Statistics. Computation of differences by the NYC Comptroller’s Office. Inflation data for NYC are collected on a metropolitan-wide basis.

In July, inflation rate in NY-Northeastern NJ was 2.1 percent, unchanged from June and the same as in the United States. The U.S. inflation rate, which was 2.1 percent, was 0.1 percentage-point above the June rate.

Compared with 12 other metro areas and the United States, the NYC metro area’s 1.9 percent inflation in 1Q99 ranked ninth highest, or fourth lowest. (See Chart 7, next page.)

Chart 7. Inflation Rate, 12 Metro Areas and U.S. Urban Average, 1Q99



Source: U.S. Bureau of Labor Statistics (BLS). Quarterly inflation rates are computed by the NYC Comptroller’s Office as averages of monthly BLS data.

4. Unemployment

The City’s unemployment rate dropped to 6.6 percent in second-quarter 1999, the lowest since 5.8 percent in first-quarter 1989, and significantly below the 7.2 percent rate in first-quarter 1999, after adjusting for seasonal fluctuations. Three pieces of good news are associated with the low unemployment rate. First, the number of seasonally adjusted unemployed civilians fell by 19,200. Second, unlike the first quarter when the drop in unemployment was due to the rise in "discouraged" population (not the rise in civilian employment), in the second quarter, the civilian employment rose by 15,500. Third, this 15,500 rise in civilian employment is 2,700 more than the rise in the payroll jobs. This suggests that City residents are filling many of the jobs created in the City and even some jobs in the suburbs.

The City’s labor-force participation rate, which is the portion of civilian population that makes the labor force (either employed or looking for a job) was 57.7 percent in the second quarter, lower than the 57.9 percent in first-quarter 1999, and below the national rate of 67.1 percent. The employment/population ratio, which is the portion of population with a job, rose to 53.9 percent in the second quarter, compared with 53.7 percent in the previous quarter, but still below the national rate of 64.2 percent.

The City’s unemployment rate continues to be higher than the national average. The City’s seasonally adjusted unemployment rate was 6.6 percent, much higher than the 4.3 percent U.S. rate. (See Chart 8, next page.)

The City’s seasonally adjusted unemployment rate, which had dropped below 7 percent for the four months March through June, was back up to 7 percent in July. Contributing to the slight rise in unemployment was a faster labor-force growth (32,300) than the number of employed city residents (24,300). As a result, 8,000 more people were looking for work, i.e., were unemployed, bringing the total seasonally adjusted number of unemployed in the City in July to 240,700, up by 25,400 since March.

The seasonally adjusted labor-force participation rate in July was 58.5 percent, up from 58.0 percent in June and the highest since 58.6 percent in November 1998. This compares with a national labor-participation rate of 67.0 percent. The NYC labor-force participation rate peaked in March 1998 at 59.2 percent. The City’s seasonally adjusted labor force declined from a high of 3.456 million in February 1998 to 3.446 million in July 1999.

Chart 8. Unemployment Rate, NYC, U.S. and NYC Less U.S., Monthly (SA), 1988-1999



Source: Seasonally adjusted (SA) series and differences computed by the NYC Comptroller’s Office, based on monthly data from the NYS Department of Labor and U.S. Bureau of Labor Statistics.

NYC’s seasonally adjusted employment/population ratio for July was 54.4 percent, matching the previous high in June 1998. This ratio is nearly 10 percentage points below the national employment/population ratio of 64.1 percent, indicating that NYC has a significantly higher proportion of non-working residents compared with the national average.

Of the 20 largest metro areas, the NYC metro area and the City itself had the highest rates of unemployment. These numbers are not seasonally adjusted, because comparable seasonally adjusted data for other metro areas are not available. (See Chart 9.)

Chart 9. Unemployment Rate, 20 Largest Metro Areas and U.S. Urban Average,
Not Seasonally Adjusted, 2Q99



Source: BLS. All data are for metro areas (MSAs or PMSAs); the NYC area is a PMSA. The NYC number is not comparable to that in the Summary Table and Chart 8, which show seasonally adjusted unemployment data.

5. Tourism and the Hotel Industry

The hotel occupancy rate averaged 81.6 percent in second-quarter 1999, below the 85.5 percent in second-quarter 1998, which was a record since 1980 (and compares with a second-quarter low of 68.5 percent in 1992). The hotel occupancy rate is usually at its highest during either the second or the fourth quarter. Given this trend, second-quarter 1999 performance is a sign that tourist industry has slowed down. The second-quarter 1999 daily hotel room rate averaged $218 per night, compared with $210 per night in second-quarter 1998. (See Chart 10.)

Chart 10. Daily Room and Occupancy Rates, NYC Hotels, Monthly Averages, 1994-1999



Source: PKF Consulting.

 

6. Real Estate

Commercial real estate vacancy rates in second-quarter 1999 in Manhattan were flat, at 8.0 percent in second-quarter 1999, marginally higher than 7.9 percent in second-quarter 1998. The difference mostly reflects a rise in vacancies in Downtown. Midtown South was the only real estate sub-market where the vacancy rate continued to decline, and only by one-tenth of a percentage point. (See Chart 11.)

Chart 11. Vacancy Rates, Manhattan, Overall Commercial, 2Q99 and 2Q98



Source: Cushman and Wakefield.

On the other hand, rental rates continued to rise significantly in second-quarter 1999. This could be an important deterrent for firms considering an expansion in, or move to, Manhattan. (See Chart 12.)

Chart 12. Rental Rates per Sq. Ft., Manhattan, Commercial, Average, 2Q99 and 2Q98



Source: Cushman and Wakefield. The average is weighted by square footage; only "direct" rentals are included, i.e., space that is immediately available, not space under construction.

7. Leading Economic Indicators

Two of the three leading economic indicators deteriorated in the second quarter, indicating an economic slowdown. However, this slowdown seems to be mild and could be temporary. (See Table 1.)

Table 1. Three Leading Economic Indicators, NYC, 1Q99 vs. 1Q98 and 4Q98*

* B=Better than prior period; N=No change; W=Worse. SA=Seasonally adjusted; NSA=Not seasonally adjusted.

Source: Conference Board (help-wanted ads), NYS Department of Labor (unemployment insurance claims), and NYC Dept. of Buildings (permits). Averages and seasonal adjustments are computed by the NYC Comptroller’s Office.

The strongest sign of slowdown is the help-wanted advertising index. It measures the supply of jobs and it dropped to 52 in the second-quarter 1999 compared with 56 in second-quarter 1998. This decline was consistent when the average for the first six months of 1999 was compared with the average in 1998. The drop in the City’s index is also consistent with the rest of the nation. According to the Conference Board, the source of help-wanted ad index, this index fell in second quarter in every region except New England. However, this drop could be temporary if the labor market does not weaken dramatically.

Another sign of economic slowdown is a rise in the number of initial unemployment claims. This variable, which measures the number of people filling for unemployment insurance, rose by an average of 348 per month in the second quarter, after adjusting for seasonal fluctuations. However, on a year-over-year basis the unadjusted number of claims dropped significantly. Compared with the first half of 1998, first half of 1999 shows an improvement as the number of claims declined by an average of 1,281 per month. Compared with the 2Q98, the number of claims was down by an average of 570 per month in second-quarter 1999.

Finally, the number of building permits authorized shows continued strength. In fact, the first half of 1999 is the strongest first half since 1992, when data were first available. (See Chart 13.)

Chart 13. Change in the Number of Building Permits Authorized, First Six Months of Each Year, Percent, 1993-1999

Source: NYC Dept. of Buildings.