View Economic Notes (Pdf)

New York City's economy continued to grow in the third quarter of 2005 (3Q05), marking the eighth consecutive quarter of economic growth, according to a quarterly report, Economic Notes, published by Comptroller William C. Thompson, Jr.

New York City 's Gross City Product (GCP) – an inflation-adjusted measure of the overall City economy – shows overall economic growth continuing strong, with an annualized growth rate of 3.4 percent in the third quarter. However, the City's growth was below the nation's preliminary Gross Domestic Product (GDP) growth rate of 4.3 percent.

Thompson's report shows that of the City's five key economic indicators – GCP, payroll jobs, growth in withheld personal income taxes, and the unemployment rate – four of the five indicators performed better or remained the same compared with the second quarter. The one exception was the inflation rate, which accelerated in the third quarter from the second, soaring to 4.1 percent, matching the highest quarterly inflation rates observed in the past decade. The high inflation rate can be attributed to the 24 percent rise in energy prices.

“Many factors, such as Hurricanes Katrina and Rita, which increased the price of oil, contributed to the surge in energy prices this quarter for the City and nation,” Thompson said. “New Yorkers have absorbed the impact thus far, but the real test lies ahead because the higher energy costs will be reflected in this season's heating bills.”

Other concerns raised in the report are the increase in transportation costs resulting from higher energy prices and rising interest rates because of an increase in the fed funds rate by 50 basis points to 3.75 percent in the third quarter. Also, the City's employment/ population ratio of 55.9 percent in the third quarter continues to lag behind the nation's rate of 62.9 percent, suggesting that a substantially higher proportion of the City's residents have difficulty finding employment than in the nation as a whole.

Despite these concerns, Thompson's report shows a fairly healthy picture of the City's economy. Wall Street profits are expected to be at least $8.3 billion for the second half of 2005, which is an increase of 22 percent over the second half of 2004. In addition, venture capital investment placed fifth-highest in the region with capital investment worth $249 million in the third quarter.

The City's three leading economic indicators – the business conditions index, the number of building permits and help-wanted advertising index – each increased and showed improvement on a year-over-year basis. In addition, tourism, including the hotel industry, showed marked improvement. The first and third quarters tend to be seasonally slow; the average-daily-occupancy rate of 87.2 percent was the best third-quarter performance since 1980.

Economic Notes for the third quarter of 2005 (3Q05) includes the following New York City data:

• Real Gross City Product (GCP), a measure of the overall City economy, grew 3.4 `percent in 3Q05, below the preliminary GDP of 4.3 percent for the United States . Of the five key economic indicators for the City and nation, three improved in both the City and the nation. But inflation accelerated in both City and nation.

• Payroll jobs in the City, seasonally adjusted, grew 10,800 in 3Q05, slightly more than New York City 's 9,600-job growth in 2Q05. The City's 1.2 percent annualized 3Q05 job growth lagged the nation's 1.6 percent rate. All gains in the City were in the private sector, which added 16,600 jobs. Government jobs fell significantly. The City's job growth ranked in the middle (ninth-highest) of the 20 largest U.S. metropolitan areas.

• Personal income tax revenues (PIT) ros e 8.7 percent in 3Q05 vs. 3Q04 . Estimated-tax payments on interest income, rental income, and capital gains rose 25.6 percent. The more broadly based withholding taxes rose 5.5 percent in 3Q05. U.S. PIT revenues rose 9.9 percent in 3Q05.

• New York City 's inflation surged to 4.1 percent in 3Q05 from 3.3 percent in 2Q05. New York City 's core inflation (excluding food and energy prices) rose to 2.8 percent in 3Q05, from 2.6 percent in 2Q05.

• New York City's unemployment rate fell to 5.6 percent, seasonally adjusted, in 3Q05 from 5.7 percent in 2Q05. It was the lowest since 5.5 percent in 2Q01. The nation's unemployment fell to 5.0 percent (lowest since 4.8 percent in 3Q01). Seasonally adjusted, 6,400 more New Yorkers were working in 3Q05 than in 2Q05. New York City 's unemployment rate was seventh-lowest of the 20 largest U.S. metropolitan areas.

• Average Manhattan commercial vacancy rates fell in 3Q05 for the seventh consecutive quarter, to 9.6 percent, from the 2Q05 rate of 11.8 percent, implying rising demand and higher rents. The average Manhattan commercial rent rose slightly to $41.35 per square foot in 3Q05 (from $40.51 in 3Q04) and rents increased in Midtown and Midtown South. But in Downtown Manhattan, where the vacancy rate is the highest, average commercial rents decreased.

• Leading economic indexes improved. On a year-over-year basis, in 3Q05 the New York City business-conditions index increased 12.8 percent; the number of building permits authorized rose 7.5 percent; and the City's help-wanted-advertising index rose 18 percent.

Summary Table. Five Key Economic Indicators, NYC and U.S. , 3Q05 vs. 2Q05

Note: Data sources are in Charts 1, 4, 6, 7, and 9. NSA means Not Seasonally Adjusted. SA means Seasonally Adjusted. SAAR means SA Annualized Rate. PIT means Personal Income Tax. Comparisons for “Better” or “Worse” are with the prior quarter.

A copy of the report can be found at the Comptroller's web site: www.comptroller.nyc.gov