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New York City 's Gross City Product (GCP) - a measure of the overall inflation-adjusted production of goods and services in New York City – rose at an annualized rate of 3.4 percent in the third quarter. This growth rate is higher than the 2.9 percent rate in the second quarter, as the City's economy grew for the fourth consecutive quarter. The estimate of real (inflation-adjusted) growth is in the Comptroller's publication, “Economic Notes,” a report that identifies trends and changes in the City's economy.

The City's third-quarter GCP growth rate was below the corresponding U.S. GDP growth rate of 4.0 percent (“final” - see Summary Chart). Factors that limited the City's third- quarter economic performance include a higher rate of inflation than the nation. For the nation, limiting factors include higher oil prices, a rising fed funds rate and continued trade deficits.

The GCP increase reflects improvements in both jobs and incomes. Payroll jobs rose 0.9 percent seasonally adjusted, the fourth consecutive quarter of seasonally adjusted growth. The City had the seventh-highest rate of job growth in the third quarter compared with the 20 largest metro areas. Personal Income Tax (PIT) revenues, a proxy for incomes, rose 12.7 percent in the third quarter of 2004 compared with the same quarter in 2003. This was the strongest quarter of PIT growth since the third quarter of 1998. The third-quarter increase reflects the increased number of New Yorkers with jobs and a continued high level of profits on Wall Street.

“Although the City added only 8,200 payroll jobs in the third quarter, a slower rate of growth than in the nation, 49,500 more New Yorkers are working now than a year ago,” Comptroller Thompson said. “This is the greatest increase in the number of New Yorkers working since the second quarter of 2000.”\

Four of the City's five key economic indicators – GCP, payroll jobs, personal-income-tax growth and the unemployment rate – show that the City economy performed better in the third quarter than in the second. Only inflation deteriorated, largely because of higher oil prices and a weaker dollar (which tends to increase the U.S. prices of all imports).

“This quarter's strong rate of economic growth is encouraging,” Thompson stated, “but rising interest rates, inflation and trade deficits continue to be areas of concern in 2005.”

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

•  During 3Q04, the City added 8,200 seasonally adjusted payroll jobs, a 0.9 percent annualized growth rate, slower than the U.S. growth rate of 1.2 percent. Private firms added 14,300 jobs, but the public sector lost 6,100 jobs. Compared with 3Q03, without seasonal adjustment, payroll jobs rose by 1.1 percent, for the second quarter in a row, after 12 consecutive quarters of year-over-year job losses. The City had the seventh-highest rate of job growth in 3Q04 compared with the 20 largest metro areas.

•  On a year-over-year basis, personal income tax (PIT) revenues increased 12.7 percent in 3Q04. NYC's PIT is used as a proxy for the City's personal incomes, which are reported with a lag of about two years. The 3Q04 increase in PIT reflects the fact that more New Yorkers have jobs and Wall Street profits continue at a high level. Estimated taxes increased 31.2 percent and w ithholding taxes increased 9.1 percent. U.S. PIT revenues rose at a slightly lower rate, 12.4 percent in 3Q04, also compared with 3Q03.

•  NYC's inflation rate rose to 3.5 percent in 3Q04 from 3.1 percent in 3Q03. The NYC metropolitan-area core inflation rate, which includes all items except food and energy, averaged 2.7 percent in 3Q04 compared with 2.5 percent in 3Q03. The U.S. inflation rate averaged 2.7 percent and the core rate averaged 1.9 percent. The fact that the City's inflation rate is higher than the nation's implies a weakening in the City's competitiveness compared with the rest of the nation.

•  NYC's unemployment rate fell but remained significantly higher than the nation's. NYC's seasonally adjusted unemployment rate fell to 7.0 percent in 3Q04. This is the lowest rate since 4Q01, when it was also 7.0 percent. The seasonally adjusted U.S. unemployment rate fell to 5.5 percent in 3Q04, from 5.6 percent in 2Q04. The U.S. unemployment rate was the lowest it has been since 4.8 percent in 3Q01. Although the City added only 8,200 payroll jobs, seasonally adjusted, 49,500 more New Yorkers were working in 3Q04 than in 2Q04, the biggest quarter-over-quarter increase since 2Q00.

•  Average real estate commercial vacancies fell for the third consecutive quarter. The Manhattan commercial vacancy rate in 3Q04 fell to 11.4 percent, below the 3Q03 rate of 12.5 percent. The vacancy rate fell most steeply in Midtown South, followed by Midtown and then Downtown. The decline in vacancy rates is usually a sign of rising demand for space, which leads to a rise in rental rates. The average Manhattan commercial rent increased to $40.51 per square foot in 3Q04, higher than $40.39 in 3Q03. Rents increased in Midtown, but decreased in Midtown South and Downtown.

•  Leading economic indexes were mixed. On a year-over-year basis, the NYC business-conditions index increased by 37.6 percent and the number of building permits authorized rose 11.2 percent in 3Q04. However, the City's quarterly help-wanted-advertising index fell 5.7 percent.

Summary Table. Five Key Economic Indicators, NYC and U.S. , 3Q04

Note: For sources, see Charts 1, 3, 6, 8, and 9 in the 3Q04 issue of Economic Notes . NSA=Not Seasonally Adjusted. SA=Seasonally Adjusted. SAAR =SA Annualized Rate.

1. GCP and GDP growth=overall real-dollar increase in the economy (3 percent growth is a long-term

sustainable target). GDP growth rate shown is “final” estimate of December 22, 2004 .

2. Payroll jobs=number of people on payrolls, by place of work, a key factor in GCP and GDP.

3. Income=key determinant of GCP and GDP (jobs times average income is 60-70 percent of GCP and

GDP); PIT is a proxy.

4. Inflation=a measure of economic sustainability.

5.  Unemployment=a measure of human-resource utilization.

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