State’s Economic Outlook Ranges from Bleak to Uncertain

State’s Economic Outlook Ranges from Bleak to Uncertain
New York Fed Experts Speak at CPA Journal Forum

A regional economist last month portrayed New York City as a metropolis hit hard by recession, terror and financial sector downsizing, but that is just recently showing signs of economic recovery. Meanwhile, financial conditions upstate are not good, and the weather, of all things, may help explain why, according to a second economist.

Both experts, Jason Bram, an economist with the Federal Reserve Bank of New York who specializes in the New York–New Jersey region, and Dr. Richard Deitz, an economist with the Buffalo branch of the Fed who concentrates on upstate New York, were guest speakers at The CPA Journal’s first Economic Forum, on Sept. 16 at the New York State Society of CPAs’ offices in Manhattan.

Stats and the City

Bram painted an uncertain portrait of New York City’s current economic condition, saying that while some statistics cast a gloomy shadow over the city, other indicators, such as improvement in the local office real estate market, suggest there is a silver lining.

Bram compared the city’s economic health with the country’s general outlook by placing key economic data in historical context. Bram pointed to trends in private wage and salary earnings, private-sector job growth and population growth, as well as trends more specific to New York, to hypothesize on the direction the local economy seems to be taking.

“We’ve been in a bad recession for a couple of years now,” Bram said.

“In hard recessions, (New York City) goes in first and comes out later than the rest of the country,” he added later. “In not-so-hard times, it’s about the same. The U.S. recession ended last year, and New York? The problem is it’s not clear, we’re still in a recession now.”

Bram said that considering the effects of the 1990s’ dot-com bust, downsizing in the financial sector, the Sept. 11 attacks and the accounting scandals, New York’s financial condition, after all, wasn’t so bad.

“I think we’re doing well considering the hits we took,” he said.

Trends in the Fed’s Index of Coincident Economic Indicators over the past 36 years showed the city experiencing what Bram said were two major recessions: a long downturn in the 1970s and a steep drop in the early ’90s. Bram said the current recession was worse than either of those downturns, although the city fared better, according to the Index, than the state at large. Unfortunately for the region, there is no sign in the Index of a recovery.

Bram pointed to a steep decrease in personal income compared to the national average. There was close to a 20 percentage-point plummet in 2001 following a 10 percent increase at the height of the 1990s’ economic boom, while the U.S. as a whole saw a loss of about 8 percent. Changes in income in New York have been in the negative since that year, while the national average has begun to show some growth. At the same time, job growth hasn’t improved—largely because Wall Street drives employment in New York—but has suffered after Sept. 11 and the accounting problems.

Employment, real estate and population trends, though, show that it’s not all gloom and doom. Bram said that New York City job growth is showing signs of improvement, coming off its recession-era lows, and outperforming the U.S. as a whole. The real estate market, he said, was improving, and there has been an especially hopeful sign in a recent dramatic increase in city housing permits.

“After 9/11 I was talking to people and I got the general sense that this would have a grave impact on the housing market. Whatever else, realty would go down,” Bram said. “Housing indicates a kind of belief in the future and values. Sept. 11 seems to have had no effect on the market. That our region has held up better than the U.S. suggests people are ready to make a long-term commitment to stay.”

Go West, Young Man

Though not completely dire, the economic picture upstate, in the words of Deitz, is not a “pretty” one. The expansion that rippled through most of the country in the 1990s never really made it to the region, and the latest recession left Binghamton and Rochester, in particular, hanging out to dry.

According to the U.S. Department of Labor, these two cities, which have been heavily reliant on dominant employers like Kodak, Xerox and IBM, experienced job losses of 6.8 percent (Binghamton) and 6.0 percent (Rochester) during the recession, significantly exceeding their average loss during other postwar recessions. Unlike past economic downturns, such big companies have historically been able to bring their employees back, but because of organizational restructuring, Deitz said he isn’t sure this trend will continue in these areas.

Alluding to Binghamton’s and Rochester’s concentrated industry bases, Deitz noted that “more diversified economies have fewer ups and downs.”

In some ways, these two cities may typify the lack of growth that has stifled the Northeast in general. While the reasons for this economic abatement are numerous and complex, there’s at least one factor that even the layman can comprehend: the population, especially in upstate New York, is not growing. Instead, the population is moving to the warmer climates of the South and the West, and manufacturers are following close behind, Deitz said.

The Census Bureau reports that from 1990 to 2000, the metro area population growth in Binghamton and Utica, for example, declined by 4.6 percent and 5.3 percent, respectively. Manufacturing employment from 1990 to 2002 decreased by 31 percent in Utica and 44 percent in Binghamton, according to the Department of Labor. Contrary to this pattern, however, metro area Rochester experienced a 3.4 percent population growth, but a 30 percent decline in manufacturing employment, for the same years mentioned.

Of course, the promise of a higher heat index, not to mention manicured golf courses and crispy fried chicken, aren’t the only things luring manufacturers below the Mason-Dixon line. There’s also the fear of unions in New York state.

“Unionized labor tends to be a repelling force for business location,” Deitz said. “(But) this could be a perception and not reality.”

Real or not, Deitz also suggested that it may simply be easier for manufacturers to get a fresh start in a new capital base, instead of an abandoned plant like those that dot the Northeast and must be cleaned up first. High taxes, steep electricity bills and disproportional regulatory burdens may also be discouraging manufacturers from choosing an upstate location to do business.

Unfortunately, Deitz doesn’t see an immediate end to this economic restructuring, suggesting that the jobs lost may never come back. It doesn’t help, he noted, that companies are outsourcing jobs overseas where labor costs are cheaper. Adding insult to injury, government initiatives to stimulate economic growth are difficult to evaluate and, in the case of the state’s Empire Zone Program, tend to become very politicized, the economist said.

But, as with the city, there are a few bright spots. For starters, Albany weathered the recession pretty well, owing a great deal to its government and education sectors and the spin-off employment opportunities from them. The city’s manufacturing sector is much smaller than other areas upstate, Deitz said.

For a city that has taken its share of hard knocks, Buffalo, which has a more diverse industry base than Binghamton and Rochester, even managed to keep its head above water. The job loss for the city during this last recession was 2.6 percent, compared to an average job loss of 5.80 percent in postwar recessions, the Department of Labor states.

The CPA Journal plans to make the Economic Forum an annual event.