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Recent Trends in the New York City Economy


March 25, 1999

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H. Carl McCall

State Comptroller

Office of the State Deputy Comptroller for the City of New York

Report 10-99


 

City Enjoys Best Two-Year Employment Growth on Record

The last two years have proved to be the best years on record for employment growth in New York City. Between December 1996 and December 1998, total employment increased by almost 165,000 jobs (on a seasonally adjusted basis). The next best period was 1968-1969, just before the all-time employment peak in the local economy.

Employment revisions released in March show that recent growth was much stronger in New York City than originally estimated, primarily in 1997. Most of this revision was centered in local government education programs. Private sector employment was about 10,000 jobs lower than previously estimated.

Nonetheless, the private sector still grew by almost 75,000 jobs, or 2.6 percent, in 1998. The growth in government employment was flat, following an increase of over 12,000 jobs in 1997. Thus, total employment in New York City increased by 75,000, or 2.1 percent, after a record setting increase of 90,000, or 2.7 percent, in the year ending December 1997.

Recent employment growth has boosted the number of jobs the City has recovered since the 1989-92 recession to 316,000 by February 1999, or 85 percent of what had been lost. The share of jobs recovered by the City’s private sector is considerably higher (97 percent) than this since the government sector has declined since 1993. As shown in Figure 1, while the jobs lost during the recession were spread throughout the local economy but centered primarily in trade, the service sector has accounted for most of the replacement jobs.

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Employment in the City can be grouped into export, local market, and government sectors. The export sector consists of industries that provide goods or services on a national or international level, thereby bringing income into the City. Local markets are those that service the needs of residents and businesses here in the City.

Export Sector

Job growth in the export sector, which had surged to 51,800 or 4 percent in the year ending December 1997, eased back to 39,200, or 2.9 percent, in the year ending December 1998. As shown in Figure 2, export sector growth has been more volatile since the end of the early 1990s recession.

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Business services continued to lead the sector, with job gains of 16,900, primarily due to computer software and temporary help agencies. However, two of the areas that contributed to the large gains of 1997 – securities and culture and media – slowed considerably in 1998 (see Figure 3). The instability in the financial markets helped hold the job growth in the securities sector to 7,300 compared to 11,900 in 1997. A slowdown in movie production was chiefly responsible for the slower employment growth in culture and media – 6,300 jobs in 1998 compared to 11,700 in the prior year. The electronic and print media areas showed somewhat better growth in 1998.

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Employment growth in professional services increased at the best rate since the late 1980s (11,400 jobs) reflecting the increased demand for the City’s lawyers, accountants, consultants, and engineers. The City’s continued popularity as a tourism destination has kept hotel occupancy high and encouraged hotel renovations and construction, leading to 700 additional hotel jobs.

Banking employment was essentially unchanged in 1998, marking the first pause in a decade long decline. Over one-third of the City’s banking jobs have disappeared since 1988. Insurance industry losses slowed in 1998, to 800 jobs; nonetheless this industry continues to follow a long-term downward trend. Real estate and investment firms added 2,400 jobs.

Manufacturing employment, which actually interrupted its post-World War II slide with a small gain in 1997, returned to job losses in 1998. Employment declined by 5,100 jobs, driven down by a 4,600-job loss in apparel, the worst decline in this area since 1990, largely due to the impacts of lower import prices from Asian competitors.

Local Market Sector

In general the local market responds to job and income gains in the export sector. Job growth in this sector has also been somewhat stable since the recession, averaging about 29,000 jobs annually from 1993 through 1997. The 35,600 jobs gained between December 1997 and December 1998 were somewhat above trend and almost matched the gain in the export sector.

Retail trade employment grew somewhat faster in 1998, increasing by 9,400 jobs or 2.4 percent, its second best performance in the 1990s. Restaurants accounted for 3,800 jobs, although this was about one-third less than last year’s gain. Apparel stores added 3,000 jobs, the best increase for this sector in over ten years.

After several years of slowing due to consolidations, the growth of managed care, and government cutbacks, growth in health service employment rose to 8,400 jobs in 1998, up from a 6,000 gain in 1997. Nonetheless, future growth in the medical sector will remain constrained by these trends. Social services gained 5,600 jobs in 1998, reflecting an increased reliance by the City on private providers in such areas as foster care and homeless services.

Reflecting the hot real estate market, and the increased demand for renovations, construction employment grew by 7,900 jobs or 8.2 percent. This was the best growth in construction since the mid-1980s building boom, and the fastest rate of growth of any major industry in the City. In general, construction trends in the City have paralleled those in the surrounding region.

Government employment was flat in 1998 following an increase of 12,400 jobs in 1997. This is a reversal of the downsizing that occurred from 1994 through 1996, when 43,200 government jobs were eliminated.

Downstate Drives Statewide Employment Growth

Most of New York State’s employment growth continues to come from the downstate regions (see Figure 4), although upstate has improved slightly. Overall State employment grew by 2 percent or 162,000 jobs on an average annual basis in 1998. In the downstate region, New York City grew by 2.4 percent or 82,000 jobs, Nassau-Suffolk grew by 2.5 percent or 28,000 jobs, and Westchester-Rockland by 2.4 percent or 12,000 jobs. These areas represent three-quarters of the total statewide increase in employment, but less than two-thirds of the employment base.

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The four major upstate metro areas – Albany, Buffalo, Rochester, and Syracuse – together grew by 1 percent or 18,000 jobs in 1998, stronger than originally reported prior to the recent revisions, especially in such industries as manufacturing, construction, and services.

Services accounted for most of the growth across New York State in 1998. While business services grew everywhere, health services did much better downstate. Likewise, construction grew rapidly in all areas, but trade performed better downstate.

Wall Street Performed Better Than Initially Expected

After earning a record $12.2 billion in 1997, Wall Street profits declined by 20  percent to $9.7 billion in 1998. Even so, earnings in the last two years have been the highest on record. Profits derived from underwriting activity continued to increase in 1998, as did fees from merger and acquisition activities, although in both of these areas most of the business occurred in the first half of the year. However, while revenues rose by 17.3 percent, expenses rose by 20.8 percent, primarily driven by higher interest expense and compensation to employees.

As a result of the decline in profits last year, we estimate that Wall Street bonuses fell to $11.3 billion in 1998 from $12.3 billion in 1997. However, such record-breaking levels of bonuses are still having profound effects on revenue collections in New York City. Personal income tax withholding collections have risen by 13.7 percent during the first eight months of FY 1999, which include the months of December through February when many bonuses are paid, after growing by 17.7 percent in all of FY 1998. Although year-to-date business tax collections have declined from last year’s levels, they are much higher than originally forecast by the City because of the attainment of higher Wall Street profit levels than had been expected.