New York City Office of the Comptroller
Alan G. Hevesi, Comptroller                                                Vol. VIII, No. 1
1 Centre Street, NY, NY 10007                                                                     February 2000

NYC’S ECONOMY ENDS UP FINE IN 4Q99

SUMMARY: The New York City (NYC) economy in 4Q99, while not quite up to the overall U.S. record, or its own 3Q99 growth, was strong by any standard. For the full year 1999, the City’s job growth surpassed the nation’s for the first time in the decade. The City completely recovered the jobs it had lost during the 1989-1992 recession. Unemployment fell to pre-1989 levels, yet inflation remained low.

• Gross City Product (GCP) in 4Q99 grew at a real annual rate of 5.4 percent, close to real GDP growth of 5.8 percent. GCP grew 5.3 percent for all 1999, exceeding GDP’s growth of 4.0 percent. (See Summary Table below.)

• Payroll Jobs, seasonally adjusted, were up by 15,300 in 4Q99 as a result of a 20,000-job increase in the private sector and a 4,700-job loss in the public sector. The 28 consecutive quarters' growth is the longest on record. Although the City’s 4Q99 job growth of 1.7 percent was below the nation’s 2.0 percent, the City’s annual rate of job growth, 2.3 percent in 1999, surpassed the nation’s 2.0 percent. The private sector gained 81,100 jobs in 1999, the largest one-year private-payroll expansion since 1969.

• PIT Revenues, a proxy for personal incomes, rose 26.4 percent in 4Q99 over 4Q98, after adjusting for tax changes. In 1999, PIT grew 15.1 percent compared with 8.0 percent in the nation.

• The Inflation Rate for the NYC metro area was 2.3 percent, below the average U.S. rate of 2.5 percent.

• The Unemployment Rate in NYC in 4Q99 fell to 6.4 percent vs. 3Q99’s 7.0 percent, the lowest since 1Q89’s 5.8 percent. U.S. unemployment fell to 4.1 percent. Unfortunately, the City’s 4Q99 labor-force-participation rate fell to 58.1 percent, below 3Q99’s 58.6 percent and the 4Q99 67.0 percent U.S. average. NYC’s 4Q99 employment-population ratio fell to 54.4 percent, from 3Q99’s 54.5 percent, well below the U.S. average of 64.3 percent.

Summary Table. Five Key Economic Indicators, NYC and U.S., 4Q99 and 1999*

4. * B=Better than prior period. N=No change. W=Worse. Indicators 1, 2, and 5 compare 4Q99 with 3Q99; 3-4 with 4Q98.
5. Sources: See Charts 1, 2, 4, 6, 8.

• Other Indicators were favorable. All three indicators improved in 4Q99. Manhattan commercial vacancy rates declined, while rental rates grew. The hotel industry had its best quarter for the year. The 4Q99 occupancy rate was the highest since 4Q97 and the average daily room rate continued to rise.

The national economy continued to grow strongly in the fourth quarter despite three interest-rate hikes in 1999 by Federal Reserve. The Fed raised its targeted short-term interest rates to slow the speed of U.S. economic growth and thereby preemptively strike against inflation. Nonetheless, the U.S. economy went on in the fourth quarter to show its strongest growth of the year, with no sign of a likely slowdown in the first half of 2000.

The New York City (NYC) economy, on the other hand, seems to have been somewhat affected by the rises in interest rates. Although the fourth-quarter growth was above average, it was below that of the nation and that of the third quarter.

1. Gross City Product

The measure that best summarizes the nation’s economic performance is its gross domestic product (GDP). For the City the equivalent number is gross city product (GCP). Gross product is the total dollar value of goods and services produced during a given time (usually a quarter or year) in a region. Change in the GDP is a good indicator of the speed with which economy is growing. The normal hypothetical "speed limit" of the U.S. economy is widely believed to be about 2.5 percent a year, i.e., the sum of an increase of about 1.0 percent in the labor force plus about 1.5 percent increase in labor productivity. This speed limit is being raised by estimates of productivity increases that are above 1.5 percent.

In the fourth quarter, GDP grew at an annualized rate of 5.8 percent, after growing 5.7 percent in the third quarter. This rapid growth is especially surprising in that it occurred after 34 out of 35 quarters (only the first quarter of 1993 was negative) of economic expansion since February 1991. Although the Federal Reserve took back in 1999 the three-quarters of a percent it had eased in 1998, the economy did not even blink. The first tightening was in June when GDP rose by 1.9 percent. Then followed two more tightenings in August and November, GDP followed by even faster growth.

The fourth-quarter GDP growth mostly reflected growth in government consumption, personal consumption, and inventories. Government consumption grew 8.4 percent in the fourth quarter, the highest growth since 8.5 percent in fourth-quarter 1988. Personal consumption rose 5.3 percent after growing 4.9 percent in the third quarter. The fourth-quarter growth was the highest since 6.5 percent in first-quarter 1999. Gross private domestic investment grew 8.4 percent in the fourth quarter, below the third-quarter’s 13.6 percent. Net exports on a year-over-year basis declined by $123.8 billion compared with $100.3 billion in the second quarter. For the full year 1999, GDP was up 4.0 percent, compared with 4.3 percent in 1998, and 4.5 percent in 1997.

GCP rose at an annualized rate of 5.4 percent in the fourth quarter compared with 7.8 percent in the third quarter. GCP growth reflected strong gains in both jobs and wages. Financial activities in the City were also favorable on several fronts. (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 4Q97 are not entirely comparable with those up to 4Q97 because the Department of Commerce has not yet released sufficient revised regional data from the pre-1998 period to permit comparable estimates of GCP.

2. Jobs

Total NYC payroll jobs expanded by 15,300 in the fourth quarter, about half the 32,700 jobs created in the third quarter. The fourth quarter was the 28^th consecutive quarterly expansion in payroll jobs, the longest string of increases since 1969, when the seasonally adjusted data were first available. The next-longest previous job expansion lasted 20 quarters and occurred between 2Q83 and 1Q88.

The private sector gained 20,000 jobs, down from 25,200 jobs in the third quarter. This was also the 28^th consecutive quarter of job increases and the longest string on record. The next-longest private-sector job expansion continued for only ten consecutive quarters, from 3Q85 to 4Q87. (See Chart 2.)

Chart 2. NYC Job Growth, ’000, and Annualized Percent Change, Seas. Adjusted, 4Q99/3Q99 and 3Q99/2Q99

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 13,900 jobs (as a result of 6,300 jobs in business services, 1,600 jobs in health services, and 400 jobs in social services); FIRE added 2,700 jobs; trade added 2,500; and construction added 1,900. On the other hand, manufacturing lost 900 jobs; and transportation and utilities lost 100. The public sector lost 4,700 jobs, mostly because of a drop of 4,500 jobs in local government.

Compared with the 2.0 percent annualized job growth in the United States, jobs in the City grew only 1.7 percent in the fourth quarter. However, for all of 1999, City jobs were up 2.3 percent, compared with 2.2 percent for the nation. In 1999, total job growth in NYC was faster than the nation as a whole for the first time since 1981.

NYC in 1999 gained 81,100 private-sector jobs, to a total (monthly average) of 3,048,800 private-sector jobs. That sets a new record for private-sector job growth, the third year in a row that the City has set a new record. The 1999 private-sector increase is the largest annual increase since records were first kept in 1951. In 1998, the City added 77,300 private sector jobs, after gaining 67,200 in 1997. The biggest one-year increase before the last three years was 65,600 in 1956.

Most of the 1999 job growth came from the service sector, which grew by 60,600 jobs. The largest increase was in business services, up 23,600. Other services that grew were health services, up 8,700; motion pictures, up 7,300; social services, up 5,700; engineering and management, up 5,500; and legal, up 2,900. Other job gains included trade (mostly retail), up 12,100; construction, up 7,000; finance, insurance and real estate (FIRE) up 4,400 (a 5,900-job increase in securities and 1,500 in real estate were partially offset by losses in banking and insurance); and transportation and public utilities, up 1,400. Government jobs overall were up only 400, as a 1,700-job increase in local government jobs was offset by a loss of 1,000 Federal jobs and 300 state jobs.

When government jobs are included, the 1999 total job increase was 81,500, second only to the 85,700 jobs gained in 1998.

Compared with the 20 largest metro areas and U.S. average, NYC had the fifth-highest rate of job growth. On a year-over-year basis, City jobs rose 2.5 percent in fourth quarter, below Houston with 2.6 percent, Washington with 2.6 percent, Dallas with 3.4 percent, and Atlanta with 4.9 percent. Cleveland, with 0.5 percent, had the lowest rate of job growth. (See Chart 3.)

Chart 3. Job Growth, 20 Largest Metro Areas and U.S. Average, Percent Change, 4Q99 over 4Q98

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

Personal-income data for the City are published annually by the Bureau of Economic Analysis of the Department of Commerce,. However, the data appear with a lag of at least two years. So as a proxy for income, personal income taxes (PIT) and average hourly wages are used.

PIT rose 6.1 percent in the fourth quarter of 1999 compared with 10.6 percent in the fourth quarter of 1998. However, PIT data have a drawback. The recent changes in tax laws, such as ending of the 12.5 percent PIT surcharge in December 1998, a reduction in the School Tax Relief Program, and the elimination of the commuter tax, have made PIT for different years incompatible. Adjustments must be made to make the data more compatible.

When the data are adjusted for tax cuts and other items, PIT experienced a strong growth of 26.4 percent in the fourth quarter. After adjusting for the changes in tax laws, withholding was up by 17.4 percent in fourth-quarter 1999, compared with a drop of 3.8 percent in the fourth quarter. In 1999, PIT on a common rate and base rose 15.1 percent, compared with 14.0 percent in 1998. PIT in the nation rose 8 percent in 1999. (See Chart 4.)

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

*PIT and withholding amounts in 4Q99 are not compatible with those of 4Q98. Therefore, PIT and withholding in 4Q98 are adjusted for comparative purposes to take into account changes in tax laws.

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

On a year-over-year basis, average hourly wages rose for all of the sectors published by the NYS Department of Labor during the fourth quarter of 1999. Depository institutions had the biggest gain, 5.9 percent, followed by 5.5 percent in construction. (See Chart 5.)

Chart 5. Average Hourly Wages for Selected Industries, NYC, 4Q99 over 4Q98

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

4. Inflation

In the fourth quarter, the inflation rate, measured as a year-over-year change in consumer price index, was 2.3 percent in the NYC metro areas, which covers New York-Northern New Jersey-Long Island, Connecticut, and Pennsylvania. This is the highest rate since 2.3 percent in second quarter of 1997. (See Chart 6.)

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.

The rise in inflation is mostly due to energy prices, which rose 9.3 percent. The core rate, which is all items less food and energy, was only 1.8 percent. Medical care prices rose 3.6 percent, transportation prices rose 3.3 percent, housing prices, services, and food and beverage prices, each rose 2.1 percent. Apparel and upkeep had the smallest increase, 0.5 percent.

Compared with the U.S. urban average and 12 largest metro areas, New York City metro area had the third-lowest rate of inflation. Cleveland had the lowest rate, 1.9 percent, and San Francisco had the highest rate, 4.2 percent. The U.S. urban average inflation was 2.6 percent. (See Chart 7.)

Chart 7. Inflation Rate, 12 Metro Areas and U.S. Urban Average, 4Q99

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.

The City’s average inflation rate for 1999 was 1.9 percent, below the nation’s 2.1 percent. The rise in energy prices of 1.8 percent in 1999, compared with the decline of 6.1 percent in 1998, was the main culprit behind the rise in the City’s inflation rate.

5. Unemployment

Payroll data grew more strongly than civilian employment date, but unemployment continued to decline. The unemployment rate averaged 6.4 percent in the fourth quarter, below the 7.0 percent in third quarter, and the lowest rate since 5.8 percent in the first quarter of 1989, after adjusting for seasonal fluctuations. But the City’s unemployment rate continues to be well above the national average of 4.1 percent. (See Chart 8.)

The drop in the unemployment rate results from a decline in the number of unemployed, rather than the increase in the number of civilians with jobs. The number of unemployed City residents declined by 22,100 while the number of civilians with jobs rose by only 2,300. As a result, the City’s employment/ population ratio declined to 54.4 percent in the fourth quarter, below the national rate of 64.3 percent and the City’s 54.5 percent in the third quarter. Also, the City’s labor-force-participation rate declined to 58.1 percent in the fourth quarter, below the 67.0 percent rate for the nation and the City’s 58.6 percent rate in the third quarter.

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 keeps leading the 20 largest metro areas in its rate of unemployment. The City’s seasonally unadjusted unemployment rate averaged 6.3 percent in the fourth quarter, 1.5 percentage points above the U.S. urban average. Outside of NYC, Miami’s 5.5 percent was the highest unemployment rate. Minneapolis, with 1.7 percent, had the lowest rate. (See Chart 9.)

Chart 9. Unemployment Rate, 20 Largest Metro Areas and U.S. Urban Average,Not Seasonally Adjusted, Percent, 4Q99

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

In 1999 NYC residents gained only 17,100 new jobs based on household surveys. This is the weakest year since 1995. The number of unemployed was down by 42,500 in 1999, but the labor force also declined by 25,400. As a result, the NYC labor-force-participation rate was 58.1 percent, 9 percentage points below the national average. Similarly, the employment/population ratio was 54.1 percent, more than 10 percentage points below the national rate of 64.3 percent. The average NYC unemployment rate in 1999 was 6.8 percent, compared with a 4.2 percent nationally. The 1998 City rate was 8 percent.

6. Tourism and the Hotel Industry

The hotel-occupancy rate peaked at an average of 85.8 percent in the fourth quarter despite having only 76.0 percent occupancy rate in December. According to a survey by Pannell, Kerr, Forster Consulting (PKF), the New Year’s Eve 1999 occupancy rate was 79.9 percent versus 88.6 percent in 1998. This could be the result of the high average daily room rate on the night commencing December 31, 1999, which was 56 percent higher than the previous year; or it could be the result of Y2K fears. The average occupancy rate was 83.3 percent in the third quarter. The fourth-quarter hotel-occupancy rate was the highest since 86.0 percent in the fourth quarter of 1997. The average daily room rate also rose to $261 in fourth quarter from $206 in the third quarter. (See Chart 10.)

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

Source: PKF Consulting.

The 1999 hotel-occupancy rate was 81.6 percent. Although 1999 occupancy rate was slightly below 81.8 percent in 1998, it was significantly above 75.0 percent, the average annual occupancy rate since 1980. The 1999 average daily room rate was $226, more than 5 percent above the $215 in 1998.

7. Real Estate

The City’s commercial real estate market vacancy and rental rate are a reflection of the City’s strong economy. Manhattan’s commercial real estate vacancy rate dropped to 6.7 percent in the fourth quarter 1999, 1.8 percentage points below the fourth quarter 1998. Midtown and Midtown South showed the highest drop in vacancy rate. (See Chart 11.)

Chart 11. Vacancy Rates, Manhattan, Overall Commercial, 4Q99 and 4Q98

Source: Cushman and Wakefield.

As the demand for commercial space increased, so did the rental rate. The average rental rate for Manhattan rose to $37.62 per square foot in fourth quarter 1999, compared with $35.05 in fourth-quarter 1998. Midtown South had the highest rise in the rental rates. (See Chart 12.)

Chart 12. Rental Rates per Sq. Ft., Manhattan, Commercial, Average, 4Q99 and 4Q98

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.

8. Leading Economic Indicators

The City’s three leading economic indicators improved in the fourth quarter. (See Table 1.)

Table 1. Three Leading Economic Indicators, NYC, 4Q99 vs. 4Q98 and 3Q99*

* 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 first indicator is the City’s help-wanted advertising index, which rose to 52 in fourth-quarter 1999, up 2.6 percent from the third quarter. This index is sensitive to labor-market conditions and provides a gauge to measure the change in supply of jobs. The Conference Board publishes the help-wanted advertising index for 51 cities, and the nation, every month. The national help-wanted advertising index average was 86 in fourth quarter, significantly above that of the City. In fact, the City’s advertising index is only above the Hartford (34) and Philadelphia (52). San Antonio had the highest advertising index (187) followed by Tulsa (176), and Salt Lake City (170).

The second indicator is the initial unemployment claims, which declined to 29,624 in fourth-quarter 1999 from 26,465 in the third quarter. This variable measures the number of first-time applicants for unemployment insurance.

The third indicator is the number of building permits authorized, which rose to 19,413 in fourth-quarter 1999, up by 219 from the fourth quarter 1998. The number of building permits authorized is an indicator for the construction activities in the City, which is sensitive to economic conditions.

On a year-over-year basis, two of the three leading economic indicators improved. The help-wanted advertising index declined, while the number of initial unemployment claims and number of building permit authorized improved.

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.