NY Fed Speakers: New York State, City Show Strong Growth Relative to Rest of US

Chris Gaetano
Published Date:
Nov 17, 2016

Photo by Dominic G. DiongsonNew York City has continued to lead the region in economic growth, having recovered from the 2008 financial crisis, and what makes this recovery different from previous ones is that it’s not being led by the financial sector, according to economists from the New York Federal Reserve.

Speaking at an NYSSCPA event sponsored by the Manhattan/Bronx Chapter on Tuesday night, Fed economists Jason Bram and Richard Peach provided some context for where the economy has been and where it might be headed, both for the New York region and for the country as a whole.

Bram said that New York City’s economy is growing 30 percent faster than the country as a whole, an effect that is spilling over into the upstate region. By contrast, the U.S. economy was growing at around a 2 percent rate. This economic expansion has translated into rapid job growth, with Bram saying that the city is having its strongest run in decades. 

Times like this, he said, are usually driven by growth in the securities industry, with the financial sector having led previous economic recoveries. But not this time. 

“It’s been a leader and driver of the city’s economy and yet, in this expansion, which has been the strongest expansion, there has been almost no help from the securities industry. It’s not something we would have expected, but it reflects an increasing diversification of New York City’s economy,” said Bram, whose focus at the Fed includes the economy within the vicinity of New York City.

Profits in the securities industry—which don’t include financial figures from the retail and commercial banking businesses of broker/dealers of the New York Stock Exchange—have been in a recent slide, with earnings at $9.3 billion in the Jan.-June period of this year, down 18 percent from a year earlier. That’s on top of the 11 percent drop in profits to $14.3 billion for 2015, which was the third straight year of declines, according to the New York State Comptroller’s office.

Jobs in the field across the city have also been on decline. The comptroller said that New York City accounted for less than a fifth of the country’s securities industry’s jobs last year, down from 32 percent in 1990.

The securities industry as a share of employment has actually been flat this year, according to Bram, and has been bringing in less tax revenue as well. This is partly because the industry was at the heart of the economic crisis and took a lot of damage, said Bram. But he also said that increased regulation, lower trading volume, and more processes becoming automated contributed to the sector’s sluggishness relative to growth in other areas of the economy—such as technology.

Bram said that, in contrast to securities, the tech industry in New York has experienced rapid growth. While New York is still nowhere close to catching up with Seattle or Silicon Valley in terms of tech employment, the industry has nonetheless made significant contributions to job growth. In contrast to the finance industry’s flat employment levels, tech as a share of total employment has doubled from 2 percent to 4 percent. The growth in technology, according to the New York State Department of Labor, has brought an increase in internet publishing, web broadcasting and search portal companies. At the same time, there’s been an increase of money flowing into internet companies, mainly from venture capital and angel investors. The average wage in 2014 for the information services industry was the second highest in 2014, at $142,000, based on state labor data.

Bram did point out, though, that the securities industry remains an important component of the New York City economy: Even with flat job growth, it still makes up 5 percent of city employment. 

In terms of wages, the securities industry provides one of the best-paying jobs across the city. The average salary in 2015 was $388,000, which was five times that for employment in the private sector, according to the comptroller’s office. Workers in the securities industry include stockbrokers, financial analysts, executive secretaries, accountants, auditors and office managers. Ninety percent of the industry’s jobs in the state are concentrated in New York City, according to state labor data. 

Outside of tech, Bram said much of the recent growth has been in relatively low-wage jobs, such as in leisure and hospitality. While he said he doesn’t necessarily think this is automatically a bad thing, he believes that these sorts of jobs can be entryways to better paying ones. Still, he did note that this could mean slightly less tax revenue for the state and city governments.

For the state’s fiscal year 2015-2016, tax revenue from the securities industry rose almost 15 percent from the previous year to record $13.8 billion, according to the comptroller’s office. That includes personal income tax receipts, which come as a result of high compensation from some workers and capital gains.

“State and city taxing authorities like to see the securities industry grow rapidly because they get a ton of tax revenue from that industry. If you tell them that, ‘Well, the securities industry isn’t growing but there’s good job growth in leisure and hospitality.  Well, [they’d say] that’s nice, but we’d rather see it in securities because there’s more tax revenue,’ ” he said. 

New York’s growth, however, could see a few wrinkles in the future. Bram pointed to the new overtime rules from the U.S. Department of Labor that raises the threshold for overtime exemptions to $47,000 a year.  This, he said, will have a variety of potential impacts based on how businesses react. They could simply pay out more in overtime, raise salaries to get past the exemption threshold, or hire more people to avoid having to giving people overtime. One member of the audience said that her employer decided to cut everyone’s hours so it wouldn’t have to pay overtime.

Bram also mentioned the state’s minimum wage increase to, eventually, $15 an hour. The increases will be phased in gradually from the end of 2018 to the end of 2020, starting with New York City and then extending to Nassau, Suffolk and Westchester Counties, before reaching the rest of the state. Some businesses will be affected by this more than others, he said, but regardless he said this will have wide-ranging effects throughout the state.

Bram also noted that most of the growth has been in the service industry—the manufacturing sector actually took a hit last year due to a combination of the strong dollar and weak oil prices, twin shocks that slowed growth throughout the country.

Peach, speaking about the national macroeconomic picture as a whole, explained that while the dollar was relatively stable two years ago, the year 2015 brought with it a 25 percent appreciation in value, something that he said would be a substantial shock to any economy. At the same time, oil prices began to plummet, partially because of increased supply from Saudi Arabia and partially because of a general decline in commodities around the world.

These two things,have had a reverberating impact throughout the U.S. economy, according to Peach, whose helps in the development of the Fed’s forecast of the U.S. economy. For example, because of the strong dollar, exports from the U.S. became much more expensive for other countries, and so sales plummeted for companies like Caterpillar and John Deere that were selling equipment to countries such as Australia and Canada. 

Meanwhile, falling oil prices meant falling numbers of active oil and gas rigs in the U.S., which affects New York state: Bram said that while New York does not produce oil, it does manufacture a lot of the equipment used by the energy industry. At the same time, he said states that do produce oil are worse off because of the commodity’s price delcine, with the economies of Wyoming, West Virginia and Montana shrinking. 

Still, New York’s weaker manufacturing mirrors that of the rest of the country: Peach said that slowing global demand has caused inventories to build up in the U.S., which in turn caused a slowdown in manufacturing activity nationwide. He said that the level of manufacturing output today is not that much different than it was even a year and a half ago. This means that the manufacturing sector overall, he said, has seen sluggish employment growth—in some cases, it’s even declined.

Peach point out, though, that manufacturing overall continues to shrink as a share of total employment in the U.S. economy, and as a total share of value added.

“So, despite this shock, which did cause the overall economy to slow down, at least—knock on wood—it was not sufficient to cause us to tip into recession,” he said.


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