New York City Office of the Comptroller
Alan G. Hevesi, Comptroller
Vol. VII, No. 6
1 Centre Street, NY, NY 10007
November 1999

NYC’S 3Q99 BEST OF DECADE

SUMMARY: New York City in 3Q99 performed better than in 1Q99 and 2Q99 and has now recovered all the jobs lost in 1989-1992. While subject to further revision, the 3Q99 growth rate in GCP is the highest in the 1990s, and the City in 3Q99 outperformed the U.S. economy.

• Gross City Product (GCP) in 3Q99 grew at a real annual rate of 7.3 percent, while real GDP grew 4.8 percent. GCP growth exceeded GDP growth for the fifth quarter in a row. (See Summary Table below.)

• Payroll Jobs were up in 3Q99 by a seasonally adjusted 32,700, above the 12,800-job growth in 2Q99. The 3Q99 figure is 80,200 jobs over 3Q98. Private-sector jobs increased in 3Q99 by 25,200, up from 11,000 in 2Q99, and governments added 7,500 jobs, up from 1,800 in 2Q99. NYC job growth was 3.7 percent for the quarter, above the U.S. rate of 2.1 percent.

• PIT Revenues, a proxy for personal incomes, rose 15.9 percent in 3Q99 over 3Q98, after adjusting for the end of the 12.5 percent PIT surcharge and commuter tax, and reductions in the STAR program (costing $172.7 million in 3Q99). Actual PIT revenues fell 0.5 percent. In 3Q98, the unadjusted PIT grew 12.9 percent vs. 3Q97.

• The Inflation Rate for the NYC metro area was 2.1 percent, lower than the average U.S. rate of 2.3 percent.

• The Unemployment Rate in the City in 3Q99 rose to 7.0 percent compared with 2Q99’s 6.6 percent, which was the lowest since 5.8 percent in 1Q89. The U.S. unemployment rate fell to 4.2 percent. The City’s labor-force-participation rate rose in 3Q99 to 58.6 percent, higher than the 57.7 percent in 2Q99, but well below the U.S. average rate of 67.0 percent. The employment/population ratio rose in 3Q99 to 54.5 percent, up from 53.9 percent in 2Q99, but still well below the U.S. average rate of 64.1 percent.

Summary Table. Five Key Economic Indicators, NYC and U.S., 3Q99*

4. * B=Better than prior period. N=No change. W=Worse. Indicators 1, 2, and 5 compare 3Q99 with 2Q99. Indicators 3-4 compare 3Q99 with 3Q98. 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 end of the 12.5 percent PIT surcharge and other tax changes, based on data from OMB.

• Other Indicators were mixed but favorable overall. Initial unemployment claims and the number of building permits authorized improved in 3Q99, but the help-wanted-ad index declined. In 3Q99 Manhattan commercial vacancy rates declined, while rental rates grew. The hotel industry had its best quarter in 1999, as the occupancy rate and average daily room rate both increased compared with 3Q98.

The Federal Reserve in the third quarter raised its target short-term interest rates to slow the speed of U.S. economic growth and thereby preemptively strike against inflation. But the U.S. economy nonetheless went on in the third quarter to show its strongest growth of the year.

The City’s economy performed even better, with a rate of job growth above the nation’s and signs of higher incomes. Despite this strong economic growth, inflation remained low at both the national and City levels.

1. Gross City Product

The Fed in August raised its targeted short-term interest rates by 25 basis points, for the second time in 1999. As a result, the discount rate rose to 4.75 percent and the Fed Funds rate to 5.25 percent. However, the U.S. economy in the third quarter took the interest-rate hikes in stride and grew at its strongest pace of the year, an annualized rate of 4.8 percent. This was well above its 1.9 percent growth in the second quarter, and above the first quarter’s 3.7 percent. The City’s gross product (GCP) grew even faster. In the third quarter, real chain-weighted GCP grew at an annualized rate of 7.3 percent, the highest rate in 1999; it was the fifth consecutive quarter in which GCP growth surpassed GDP growth. (See Chart 1.)

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

Source: GDP data from the Bureau of Economic Analysis of the U.S. Department of Commerce. NYC GCP estimates are by the NYC Comptroller’s Office and are preliminary for the latest quarter. The GCP numbers after Q4 1997 are not entirely comparable with those up to Q4 1997 because the Department of Commerce has not yet released sufficient revised regional data from the pre-1998 period to permit comparable estimates of GCP.

The strong performance of the U.S. economy is attributable to three factors:

1. Personal consumption, which grew at an annualized rate of 4.3 percent. Although third-quarter personal consumption growth was below the 5.1 percent in second quarter, it was still above the historical average.
2. Inventories, which rose by an annualized $31.1 billion, a sign that businesses are preparing for the holiday season and Y2K. While the third-quarter change in inventory was about twice the $17.6 billion increase in the second quarter, it was below the increase of $73.7 billion in third-quarter 1998.
3. Equipment and software, formerly called producer durable goods, which rose at an annualized rate of 21.7 percent. The software category was added on October 28, when the Bureau of Economic Analysis revised the way it measures GDP by counting software spending as capital spending. Although the full revision is not yet released, annual GDP growth is being revised upward by between 0.5 and 0.75 of a percentage point.

The City’s economy also performed strongly, with strong job and income growth, higher Wall Street profits, a rise in hourly wages, and a booming tourist industry.

1. Jobs

The City’s seasonally adjusted job growth surpassed that of the nation in the third quarter as well as cumulatively over the first nine months. Since the beginning of 1999, City establishments have added 75,400 jobs, or 2.5 percent, compared with 2.0 percent in the nation. Of the period’s total, the City’s private sector added 72,000 jobs and its public sector added 3,400 jobs. The biggest job gains of 1999 occurred in the third quarter. Also, as of September, total jobs reclaimed all their pre-1992 losses (the private sector had recovered earlier). Since November 1992, the City has gained 371,200 total jobs and 388,900 private-sector jobs, on a seasonally adjusted basis. Between February 1989 and November 1992, the City had lost 361,900 total jobs and 343,700 private-sector jobs.

In the third quarter, the payroll of City employers grew by 32,700 jobs, or 3.7 percent, to 3,625,400, a much higher growth rate than the national annualized growth rate of 2.1 percent. Third-quarter job growth was the highest quarterly growth since 34,500 in third-quarter 1997. Most of the job gains occurred in the private sector, which averaged 3,059,600 in the third quarter, a gain of 25,200 jobs over the second quarter. On the other hand, public-sector jobs were up by 7,500 to 565,800. (See Chart 2.)

Chart 2. NYC Job Growth, ’000, and Annualized Percent Change, Seas. Adjusted, 3Q99/2Q99 and 2Q99/1Q99


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

Within the private sector, services added the most jobs, followed by trade, construction, and finance, insurance, and real estate (FIRE). Services jobs were up by 15,700, of which 6,300 jobs were in business services, 2,200 in health services, 1,700 in entertainment (motion pictures and amusement), 2,000 in eating and drinking places, and 600 in social services. Engineering and management gained 1,600 and legal gained 800. Trade added 6,500 jobs, of which 5,500 were in retail and 900 in wholesale. Construction added 2,800 jobs. FIRE added 800 jobs, as securities added 1,900 jobs and real estate added 300 jobs, but banking lost 1,100 jobs and insurance lost 300 jobs. Transportation and utilities added 900 jobs. Manufacturing lost 1,500 jobs.

NYC, with 2.2 percent jobs growth, the same as the U.S. average, had the seventh-highest rate of job growth of the 20 largest metro areas. In third-quarter 1999, Atlanta, with 3.7 percent, had the highest growth; Cleveland, with 0.8 percent, had the lowest rate of growth. (See Chart 3.)

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


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.

3. Incomes

Changes in personal income may be estimated on a current basis based on one of two measures: (1) changes in the personal income tax (PIT), and (2) changes in average hourly wages. Using PIT as a proxy for NYC personal income, the third quarter shows a rise in income. (See Chart 4.)

PIT is not seasonally adjusted, because of frequent changes in tax laws. Therefore, changes are computed on a year-over-year basis. However, a year-over-year comparison of PIT is misleading, because of the ending of the 12.5 percent PIT surcharge in December 1998, a reduction in the School Tax Relief Program (STAR), and the elimination of the commuter tax. According to tax data collected in third-quarter 1999, PIT growth was negative compared with third-quarter 1998. This can’t be true, because third-quarter 1999 job growth was strong and Wall Street earned profits during the quarter of more than $2 billion.

Chart 4. Personal Income Taxes, Year-over-Year Percent Change, 3Q99 over 3Q98

*PIT growth in 2Q99 over 2Q98 is increased by $172.7 million to account for the ending of the 12.5 percent PIT surcharge in December 1998, a reduction in the STAR program taxes, and the ending of the commuter tax. 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. The adjusted levels of the two components are not as useful to know in the context of this report as the total.
Source: NYC Comptroller’s Office, based on data from the NYS Department of Taxation and Finance and NYC OMB.

To make third-quarter 1999 PIT data comparable with third-quarter 1998 data, taxes should be converted to a common rate and base, i.e., the effects of eliminating the 12.5 percent surcharge, STAR program and changes in commuter tax must be taken into account. The 12.5 percent surcharge in third-quarter 1999 translates to $126.2 million, and the reduction in the STAR program and the elimination of the change in commuter tax translate to $46.5 million. Including the change in these taxes, the PIT would have been up in third-quarter 1999 by 15.9 percent.

Since the distribution of the surcharge between estimated and withholding taxes is not known, no attempt is made to estimate the adjusted change in withholding and estimated PIT.

Average hourly wages also rose in third-quarter 1999 compared with third-quarter 1998. Average hourly wages are available for four of the industrial sectors; the quarter shows a rise in all four. The biggest rise was in construction, 7.7 percent, and the smallest was in wholesale and retail trade, 3.1 percent. (See Chart 5.)

2. Inflation

Inflation rates remained relatively subdued. The third-quarter inflation rate in the NY metro area was 2.1 percent, lower than the national urban-average of 2.3 percent. (See Chart 6.)

However, the NY metro area inflation rate was higher than the second-quarter rate of 1.9 percent and the third-quarter 1998 rate of 1.7 percent. The rise in the inflation rate in the third quarter largely reflects a rise in energy prices. After seven quarters of consecutive declines in prices, energy prices jumped 4.2 percent in the third quarter. Given the global economic recovery and arrival of winter, energy prices are expected to rise further. Other sectors with a rise in prices were medical care, 3.8 percent; food and beverages, 2.9 percent; housing, 2.0 percent; services, 1.9 percent; and transportation, 1.3 percent.

Chart 5. Average Hourly Wages for Selected Industries, NYC, 3Q99 over 3Q98

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.

Prices in apparel and upkeep declined 1.4 percent, continuing their seventh consecutive quarter of decline. The core inflation rate, which includes all items except food and energy, was 1.8 percent, unchanged from the second quarter.

Compared with 12 other metro areas and the U.S. urban average, the NY metro area had the fourth-lowest rate of inflation in the third quarter. Miami, with 0.9 percent, had the lowest rate, and San Francisco, with 4.1 percent, had the highest. (See Chart 7.)

Chart 7. Inflation Rate, 12 Metro Areas and U.S. Urban Average, 3Q99

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.

3. Unemployment

Despite the City’s strong job growth, its seasonally adjusted third-quarter unemployment rate rose to an average of 7.0 percent from the second-quarter average of 6.6 percent. The City’s rate is 2.4 percentage points above the national average of 4.2 percent. The gap between the NYC and U.S. rates has been growing throughout 1999. (See Chart 8.)

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.

The City’s third-quarter seasonally adjusted labor force rose by 54,300 to 3,449,100 after five quarters of decline. The third-quarter gain was the highest since the 93,300 gain in second-quarter 1989. The labor-force-participation rate was 58.6 percent in the third quarter, compared with 57.7 percent in the second quarter. The U.S. labor-force-participation rate was 67 percent in the third quarter, compared with 67.1 percent in the second quarter and 67.3 percent in the first quarter.

Civilian employment rose by 37,700 in the third quarter, the best quarterly gain since 41,100 in third-quarter 1997. As a result, the employment/population ratio hit a record high of 54.5 percent from 53.9 percent in second quarter. However, the City’s employment/population ratio continues to lag the national average of 64.1 percent in the third quarter, indicating that NYC has a significantly higher proportion of non-working residents compared with the national average.

The civilian unemployed also rose by 16,600 to 241,700 after two quarters of continuous decline. This was the second time in nine quarters that unemployment growth was positive.

The City’s not seasonally adjusted unemployment rate for third-quarter 1999 was 6.9 percent, the highest of the 20 largest metro areas and well above the U.S. urban average. Los Angeles, with 6.0 percent, had the second-highest unemployment rate and Minneapolis, with 2.2 percent, had the lowest. (See Chart 9.)

Chart 9. Unemployment Rate, 20 Largest Metro Areas and U.S. Urban Average, Not Seasonally Adjusted, 3Q99


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.

4. Tourism and the Hotel Industry

The third-quarter hotel-occupancy rate peaked at an average of 83.3 percent in third quarter, compared with 81.6 percent in the second quarter and 74.6 percent in the first quarter. The hotel-occupancy rate was nearly three percentage points above the 80.5 percent average in third-quarter 1998. The average daily room rate also rose to $206 in third-quarter 1999, from $198 in third-quarter 1998. (See Chart 10.)

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


Source: PKF Consulting.

5. Real Estate

The City’s vibrant economy has sustained the boon in Manhattan’s office market. Manhattan’s vacancy rate was 7.4 percent in third-quarter 1999 compared with 7.6 percent in third-quarter 1998. Only in Midtown South did the vacancy rate rise, to 6.9 percent. Vacancy rates declined in Midtown and Downtown. (See Chart 11.)

Chart 11. Vacancy Rates, Manhattan, Overall Commercial, 3Q99 and 3Q98


Source: Cushman and Wakefield.

Manhattan had the lowest vacancy rate of the decade in third-quarter 1999. However, Manhattan’s vacancy rate is significantly higher than some other major office markets, like Boston and San Francisco.

Rental rates rose by 20 percent in Manhattan. The rise was most pronounced, 25 percent, in Midtown South and was lowest, 10 percent, in Midtown. (See Chart 12.)

Chart 12. Rental Rates per Sq. Ft., Manhattan, Commercial, Average, 3Q99 and 3Q98


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.

6. Leading Economic Indicators

Two of the three leading economic indicators improved in the third quarter. Initial unemployment claims and the number of building permits authorized improved, while the help-wanted advertising index deteriorated in the third quarter, as well as in the first nine months of 1999. (See Table1.)

Table 1. Three Leading Economic Indicators, NYC, 3Q99 vs. 3Q98 and 2Q99*

* B=Better than prior period; N=No change; W=Worse. SA=Seasonally adjusted; NSA=Not seasonally adjusted. 9m=Nine months.

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 number of initial unemployment claims, which measures the number of unemployed residents filing for unemployment insurance, declined in the third quarter. Seasonally adjusted unemployment claims averaged 29,624 in the third quarter, a drop of 297 per month over the 29,921 in the second quarter. The number of building permits authorized also rose to 2,459 in third-quarter 1999, 1,228 permits more than third-quarter 1998.

The help-wanted advertising index, which measures the supply of jobs, declined 9.0 percent to 50 in third-quarter 1999 compared with third-quarter 1998. However, the City’s strong job growth and improvement in the other two leading indicators indicate that the drop in the help-wanted ad index should not be taken as a strong predictor of a decline in jobs.

Prepared by John Tepper Marlin, Chief Economist; Farid Heydarpour, Senior Economist; Michael F. Zhang and Urvashi Kaul, Economists · Published by the NYC Office of the Comptroller, Fiscal and Budget Studies · Steven Newman, First Deputy Comptroller · Jacques Jiha, Deputy Comptroller for Budget · Contact: (212) 669-2490, or visit www.comptroller.nyc.gov.