The national economic outlook has dimmed in recent months as various economic indicators have deteriorated. Most of the State's economic weakness is found in New York City, which continues to feel the results of a national recession, poor stock market performance and the attacks of September 11th. Those sectors and regions of the State economy that performed best in the boom of the late 1990's are now suffering most. The economic effects of September 11th were felt statewide.

New York State Economy

Larger than expected declines in wages and employment have resulted from the national recession and the September 11th attacks. The economic decline has been in most sectors of the economy and in most areas of the State. Seven out of every ten jobs lost statewide in 2001 Q4 were lost in New York City. While wages declined in New York City, the remainder of the State grew slightly.

• New York City Gross City Product fell 3.9 percent in 2001 Q4, declined 3.3 percent in 2002 Q1, and decreased 1.3 percent in 2002 Q2 (Source: New York City Office of the Comptroller). At the same time, U.S. GDP grew 2.7 percent in 2001 Q4, grew 5.0 percent in 2002 Q1, and increased 1.3 percent in 2002 Q2.

• Wages fell 2.8 percent in the fourth quarter of 2001, after no growth in the third quarter and a 3.2 percent growth in the second quarter.
• In percentage terms, the wage decline in the fourth quarter of 2001 was the largest since 1950.
• The wage loss in Manhattan surpassed statewide totals, while outside of New York City wages grew slightly.

• More than seven of every ten dollars of State wages lost in the fourth quarter of 2001 occurred in Manhattan below 14th Street.

• Withholding from wages declined 1.4 percent in the second quarter of 2002, following a 10.8 percent decline in the first quarter, and a 0.3 percent decline in the fourth quarter of 2001.
  • State wage data that are available from the U.S. Bureau of Economic Analysis show that wages declined 2.6 percent in 2001 Q4 and 2.3 percent in 2002 Q1.
  • If trends continue State wages in 2002 will show the first annual decline since 1991. This will also be the largest decline in State wages in sixty years.
  • Wage growth in 2003 could also be lower than the NYS Assembly Ways and Means Committee's March 2002 forecast of 5.6 percent.

New York State Employment

• Recent data reveal a bleaker picture of employment loss in the immediate aftermath of September 11th.
• About three out of five jobs lost in New York State in the fourth quarter of 2001 were in Manhattan.
• One out of five jobs lost in New York State in the fourth quarter of 2001 were below 14th Street in Manhattan.
• Small businesses with less than 100 employees accounted for nearly one-third of the State's wage losses and nearly one-half of the State's job losses.
• The decline in employment growth between 2000 Q4 and 2002 Q2 was similar in different parts of the United States.
• The employment decline in NYC was significantly worse.
• Recent data from the Covered Employment and Wages Program of the Bureau of Labor Statistics (ES 202) shows that the job loss in the fourth quarter of 2001 was over 200,000. This is a much larger drop than the 122,000 decline in the NYS Assembly Ways and Means Committee's March 2002 forecast.

• New York State ranked 43rd in employment change for the first eight months of 2002.

• Manhattan Vacancy Rates
  • In the third quarter of 2002 the vacancy rate rose in Manhattan due to rising vacancies in midtown, while vacancy rates downtown and in midtown south were stable.
  • The office vacancy rate downtown increased faster than both midtown and midtown south from the third quarter of 2001 until the third quarter of 2002.
  • The office vacancy rate downtown more than doubled since the third quarter of 2001, increasing by 7.0 percentage points through the third quarter of 2002. This compares to a 4.6 percentage point increase for midtown south and a 2.8 percentage point increase for midtown.
• Manhattan Office Space Reopened (Tenantwise.Com, July 2002)
  • 14.3 million square feet, or 59.6 percent of the 46.5 million square feet of Class A office space was destroyed in Lower Manhattan on September 11th.
  • Of the 34.3 million square feet of all Lower Manhattan office space damaged on September 11th, 17.6 million square feet (or 51.2 percent) is now reopened.
• Relocation (Tenantwise.Com, July 2002)
  • Of 608 firms that were located in buildings damaged or destroyed by the attack of September 11th, 180 were private firms with over 10,000 square feet of office space.
  • Of the 180 firms that were effected by the damage and destruction:
    • 64 (35.6 percent) moved to midtown Manhattan;
    • 18 (10.0 percent) moved to other locations in downtown Manhattan;
    • 76 (42.2 percent) retained their existing downtown location;
    • 12 (6.7 percent) moved to New Jersey; and
    • 10 (5.6 percent) moved to other locations outside New York State.
• Tourism
  • Although there has been some recovery in tourism since the September 11th attacks, hotel and airline revenue continues to show significant declines compared to the prior year.
  • Restaurant revenue, on the other hand, remains strong relative to other tourism-related spending, and never entered negative territory after the attack.

• Hotel revenue in New York City had a deeper trough than the rest of the nation and continues to show a larger drop than the rest of the country.

Securities Industry

• Securities Industry Profits (Securities Industry Association, September 2002).
  • 2000: $21.0 billion (record high).
  • 2001: $10.4 billion (decline of 50.4 percent).
  • 2002 forecast: $8.1 billion (decline of 22.1 percent), revised down by $3.6 billion from a month ago.
  • 2003 forecast: $10.0 billion (growth of 23.5 percent).
• Securities Industry Employment (Securities Industry Association, September 2002)
  • U.S. - August 2002: 722,000 (decline of 6.3 percent over previous year).
  • NYC - August 2002: 172,300 (decline of 9.6 percent over previous year).
  • Further hiring freezes or job losses are likely as gross revenue is expected to decline 16 percent in 2002.

United States Economy

• The Blue Chip Economic Indicators raised its consensus forecast for 2002 real GDP growth from the 2.3 percent reported in September to 2.4 percent in October.
• The Blue Chip consensus forecast for 2003 was lowered from the 3.2 percent reported in September to 3.0 percent.
• The new forecast for 2002 is still higher than the NYS Assembly Ways and Means Committee's March 2002 Economic Report forecast of 1.5 percent while the forecast for 2003 is lower than the Economic Report forecast of 3.7 percent.
• S&P 500
  • October 3, 2002 level: 819.0, down 45.6 percent from the historical high of 1,506.0 recorded in August 2000.

• Before-tax Corporate Profits increased at an annual rate of 11.1 percent in the second quarter, after rising 29.7 percent in the first quarter. This was the first increase in seven quarters. This was despite sizable depreciation allowances ($132.4 billion) provided by the Job Creation and Worker Assistance Act of 2002, which had the effect of reducing reported profits.

Downside risks:

• Financial market instability. Stock prices have spiraled downward due to both declining profits and corporate accounting scandals that have led investors to lose their confidence in corporate books, the regulatory system, and the financial industry in general.
• Oil prices rose significantly in July (7.0 percent), in August (3.3 percent), and in September (6.4 percent), due mainly to rising international tensions and the resulting precautionary demand.