View Economic Notes Vol XIII, No.1

New York City’s economy grew at an accelerated pace in the Fourth Quarter of 2004 (4Q04), marking the fifth consecutive quarter of economic growth, according to a publication released today by New York City Comptroller William C. Thompson.

According to the publication, Economic Notes, New York City’s Gross City Product (GCP) – an inflation-adjusted measure of the overall City economy – rose to 4.5 percent in 4Q04 compared with 3.7 percent in the third quarter. This growth can be attributed to stronger income growth and total jobs gained in this quarter compared with previous quarters.

The report noted that, overall, the City’s five key economic indicators – GCP, Payroll Jobs, Personal Income Tax Growth, the Inflation Rate and the Unemployment Rate – show that the City did better in the fourth quarter than in the third.

“The increase in GCP and the rise in jobs from the third quarter to the fourth are positive indicators. However, the City’s rate of job growth of .8 percent annualized was less than half of the nation’s growth at 1.7 percent annualized,” Thompson cautioned. “The jobs numbers are alarming because most of the gains were in the public sector, which shows the relative weakness of the private economy compared with the nation, especially in financial activities, professional and business services, education and health services.”

Other measures, the City’s leading economic indicators – the business conditions index, the number of building permits and help-wanted advertising index – each increased and showed improvement on a year-over-year basis. In addition to these indicators, the City’s real estate market experienced marked improvement and vacancy rates declined from 12.5 percent in 4Q03 to 11.0 percent in 4Q04.

“The drop in vacancy rates in Midtown South and Midtown show a rising demand for space, which should ultimately result in increased rents,” Thompson stated in the report. “However, we must keep a careful watch on the Downtown market. The area continues to be depressed with a vacancy rate of 13.7% compared with 10.1% in Midtown South and 10.2% in Midtown.”

Other indicators that could threaten the City’s growth are the rise in inflation, high oil costs, and large budget and trade deficits.

Economic Notes also includes the following New York City data:

• Private sector job gains totaled only 1,200 because losses in manufacturing (2,600 jobs in the fourth quarter) offset most of the gains in other sectors. Financial Activities eked out an 800-job gain in the fourth quarter, while the Information and Professional and Business Services sectors lost 500 jobs. Leisure and Hospitality and Other Services were the City private sector’s strong suits, adding 2,600 jobs.
  
• The City’s rate of year-over-year job growth ranked 12 th highest when compared with the 19 largest U.S. metropolitan areas other than NYC. The Miami area had the highest rate of job growth and the Detroit area had the lowest.

• On a year-over-year basis, personal income tax (PIT) revenues increased 15.4 percent in 4Q04. Estimated-tax payments on interest income, rental income, and capital gains rose 64.1 percent and withholding taxes, i.e., the amount of taxes withheld from employee paychecks, rose 3.7 percent in the fourth quarter of 2004. U.S. PIT revenues rose 8.7 percent in 4Q04, also on a year-over-year basis.

• The NYC metropolitan area inflation rate rose to 3.8 percent in 4Q04 from 3.5 percent in 4Q04. The area’s core inflation rate, which includes all items except food and energy, rose to 2.9 percent in 4Q04, a slight increase over the 2.7 percent rate in 3Q04. By contrast, the U.S. inflation rate increased more sharply to 3.3 percent in 4Q04 from 2.7 percent in 3Q04; the U.S. core inflation rate was 2.1 percent in 4Q04, a small increase from the 1.9 percent rate in 3Q04.

• NYC’s unemployment rate fell, yet remained significantly greater than the nation’s. NYC’s seasonally adjusted unemployment rate fell to 6.5 percent in 4Q04. This is the lowest rate since 3Q01, when it was 6.2 percent. The seasonally adjusted U.S. unemployment rate fell to 5.4 percent in 4Q04, also the lowest it has been since it was 4.8 percent in 3Q01. On a seasonally adjusted basis, 14,400 more New Yorkers were working in 4Q04 than in 3Q04. The NYC in 4Q04 had the seventh-lowest rate of unemployment, 6.2 percent (not seasonally adjusted), among the 20 largest metro areas. Detroit had the highest unemployment rate, 14.6 percent, and San Diego had the lowest, 3.6 percent. On an unadjusted basis, NYC metro area’s unemployment rate of 5.5 percent was less than the rate for NYC. For all of 2004, the City’s unemployment rate averaged 7.1 percent, the lowest since 6.0 percent in 2001.

Summary Table. Five Key Economic Indicators, NYC and U.S., 4Q04 and 2004

Note: For sources, see Charts 1, 3, 7, 9, and 10.

NSA=Not Seasonally Adjusted. SA=Seasonally Adjusted. SAAR=SA Annualized Rate.

1. GCP and GDP growth=overall inflation-adjusted increase in the economy.

2. Payroll jobs=number of people on payrolls, by place of work, a key factor in GCP and GDP.

3. Income growth=key determinant of GCP and GDP (jobs x average income=60-70 percent of GCP and GDP); PIT is a proxy.

4. Inflation rate=change in the consumer price index, a measure of economic sustainability.

5. Unemployment rate=unemployed/labor force=a measure of human-resource utilization.

A copy of the report can be found at the Comptroller’s website: Economic Notes

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