View “Economic Notes” for 2Q04

New York City added 5,600 jobs in the second quarter of 2004 and the economy grew for the third consecutive quarter. However, factors such as the quarter’s lower growth rate compared to the last, the unusually high rate of inflation, and the sharp decline of Wall Street profits, raise concerns about how long growth will last in the city, according to New York City Comptroller William C. Thompson, Jr.

The analysis is in the Comptroller’s publication, “Economic Notes,” a report that identifies economic trends and estimates change in the city’s economy as measured by the Gross City Product (GCP). The city’s GCP in 2Q04 grew at the same 2.8 percent annualized rate as the nation’s GDP. Both grew more slowly in 2Q04 than in 1Q04.

“The continued growth in the city’s economy is encouraging,” Thompson said. “But the high rate of inflation is worrisome. The second-quarter inflation rate of 4.1 percent is the highest the city has experienced since 1991, largely because of higher energy prices.”

The national and city unemployment rates are at lows that neither has experienced in several years. New York City’s rate of 7.4 percent is significantly higher than the nation’s rate of 5.6 percent but the city’s rate has fallen, indicating improved employment conditions. The analysis shows that 20,900 more New Yorkers were working during 2Q04 than 1Q04.

“The city’s leading economic indicators show promise for the second half of 2004 – based on the business conditions index, the number of building permits and help-wanted advertising index” Thompson stated, “but continued high inflation and Wall Street profits falling by 66 percent from the previous quarter could weaken the City’s prospects for growth.”

The latest issue of Economic Notes reports the following New York City data:

• In the second quarter of 2004, the City added 5,600 jobs (seasonally adjusted), about one-fourth the increase of 21,000 in 1Q04, and a much slower rate than the nation in 2Q04 .  Private firms added 6,400 jobs and the public sector lost 800 jobs.  On a year-over-year basis, payroll jobs rose by 0.6 percent; this was the first quarterly year-over-year increase since 1Q01, 13 quarters previously.

• Wall Street profits, as measured by the pre-tax net income of the 236 New York Stock Exchange member firms that report their data, fell by two-thirds in the second quarter, to $ 1.7 billion, according the Securities Industry Association. These profits were 68.2 percent below the level of the same quarter a year earlier and were 65.9 percent below the level of the first quarter of 2004.

• PIT increased 40.1 percent in 2Q04 compared with 2Q03.  The 2Q04 increase partly reflects higher City tax rates.  Estimated taxes increased 75.0 percent, reflecting higher dividends and capital gains.  Withholding taxes increased 9.6 percent.  U.S. PIT revenues fell 1.6 percent in 2Q04, possibly because of U.S. tax cuts.

• The New York City metropolitan area inflation rate was 4.1 percent in 2Q04, the highest since 4.2 percent in 3Q91.   The U.S. inflation rate was 2.9 percent in 2Q04, the highest since 2.9 percent in 1Q03.   

• The City’s seasonally adjusted unemployment rate fell to 7.4 percent in 2Q04.   This is the lowest number since 7.0 percent in 4Q01.  The U.S. unemployment rate, seasonally adjusted, remained unchanged at 5.6 percent in 2Q04.  The U.S. unemployment rate also was the lowest since 5.6 percent in 4Q01.

• The Manhattan commercial vacancy rate in 2Q04 fell to 11.8 percent, which was below the 12.5 percent rate in 2Q03.  The vacancy rate fell most in Midtown South, followed by Midtown, but it increased in Downtown.  Despite the decline in vacancy rates (a sign of rising demand for space), the average Manhattan commercial rent decreased to $40.56 per square foot in 2Q04, down from $41.12 in 2Q03.  Although rents decreased in Midtown South and Downtown, they increased in Midtown.

Summary Table.  Five Key Economic Indicators, NYC and U.S., 2Q04

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

1. GCP/GDP growth=overall real-dollar increase in the economy (3 percent growth is a long-term sustainable target).  2. Payroll jobs=number of people on payrolls, by place of work, a key factor in GCP/GDP.  3.  Income=key determinant of GCP/GDP (jobs times average income is 60-70 percent of GCP/GDP).  4.  Inflation=a measure of economic sustainability.  5.  Unemployment=a measure of human-resource utilization.

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