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In its ninth consecutive quarter of economic growth, New York City’s economy slowed its pace in the fourth quarter of 2005, 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 economy – shows that the economy grew 2.1 percent in 4Q05, a significant dip from 3.3 percent in the third quarter. However, the City’s economic growth was slightly above the nation’s final Gross Domestic Product (GDP) growth rate of 1.7 percent.

Thompson’s report shows that both the City and the nation experienced an economic slowdown. Three out of five key economic indicators – GCP/GDP growth, the growth in payroll jobs, and the unemployment rate– reflect a less robust economy in the fourth quarter compared with the third quarter.

The remaining two economic indicators – growth in personal income taxes withheld from paychecks and the inflation rate – slightly improved this quarter compared with the last. However, the inflation rate remains high at 4.0 percent, only a slight improvement from 4.1 percent in the third quarter.

“It is my hope that the slow economic growth rate in the fourth quarter is an anomaly and not a sign of things to come,” Thompson said. “Factors such as the recent surge in energy prices, higher inflation rates, steadily increasing interest rates and their impact on the housing market, combined with impact of Hurricanes Katrina and Rita all must be carefully monitored over the next several months.”

Other concerns raised in the report are weak job growth and a high unemployment rate in 4Q05. Both the City and the nation added jobs in the fourth quarter, but at a much slower pace. The City’s private sector added only 3,700 jobs this quarter, which is the smallest quarterly gain in two years, and the real estate sector lost 1,000 jobs, the biggest decline since 2001.

Additionally, much of the job growth this quarter was concentrated in low-paying sectors such as education and health and leisure and hospitality.

New York City also had the second highest rate of unemployment compared with 20 of the largest metropolitan areas this quarter. The number of unemployed residents increased in the fourth quarter by 6,300, the largest jump in almost four years.

“The unemployment rate in the fourth quarter was troubling, but the data released last month shows that the rate has significantly dropped since late last year,” Thompson said. “It is my hope that the rate will continue to drop and more job seekers will find good jobs in the City.”

Thompson’s report also shows that total Wall Street profits for New York Stock Exchange member-firms declined sharply in 4Q05, with profits of $7.1 billion in the first three quarters of 2005, compared with $9 billion in the first three quarters of 2004.

Although this quarter raised many concerns, the Comptroller’s report shows that improvements were made in the City’s commercial real-estate rates, venture capital investments and tourism. The Manhattan commercial rental market continued to improve for the eighth consecutive quarter and the overall vacancy rate fell to 8.4 percent, the lowest since the third quarter of 2001. The vacancy rate dropped the most in downtown Manhattan, followed by Midtown South and Midtown.

Additionally, venture capital investments placed fourth-highest in the region with capital investment worth $286.5 million in the fourth quarter.

Tourism was at an all-time high with a record-breaking 41.4 million visitors estimated to have come to the City in 2005, and hotel occupancy rate was 87.1 percent, the highest in 10 years, with an average daily room rate of $294, the highest on record.

Economic Notes for the fourth quarter of 2005 (4Q05) includes the following New York City data:

• Real Gross City Product (GCP), a measure of the overall City economy, grew 2.1 percent in 4Q05, better than the 1.7 percent pace of the final estimate for the United States GDP. Nonetheless, an economic slowdown was felt by both the City and the nation. Of five key economic indicators, only two improved in both the City and the nation.



• New York City gained 4,300 payroll jobs in 4Q05, on a seasonally adjusted basis, growing at an annualized rate of 0.5 percent. United States payroll employment grew at an annual rate of 1.2 percent. In New York City, the private sector added 3,700 jobs ─ the smallest quarterly gain in two years ─ and government added 600 jobs. Overall, the City added 49,000 jobs in 2005, but the job count of 3,599,400 remains more than 123,000 jobs shy of the 2000 peak.



• Personal income taxes withheld from paychecks were 7.9 percent greater in 4Q05 than in 4Q04, but estimated tax payments on interest income, rental income, and capital gains fell 10.2 percent. U.S. PIT revenues rose 7.7 percent and withholding taxes rose 7.4 percent in 4Q05.



• The City’s high inflation rate continued to exceed the national average in 4Q05, although it dipped slightly to 4 percent in 4Q05 from 4.1 percent in 3Q05.Core inflation, which excludes food and energy prices, fell to 2.7 percent in 4Q05 from 2.8 percent in 3Q05. The City’s inflation rate, which has been above the national average since 1Q02, hit a 14-year record average of 3.9 percent in 2005.



• New York City’s unemployment rate rose slightly to 5.8 percent, seasonally adjusted, in 4Q05 from 5.7 percent in 3Q05, but the nation’s unemployment rate remained unchanged at 5 percent.



• Rising demand for office space led the average Manhattan commercial vacancy rate to fall 8.4 percent in 4Q05, the lowest rate since 2000. The average commercial asking rent in Manhattan rose to $40.58 per square foot in 4Q05 (from $39.55 in 4Q04). Rental rates increased in Midtown and Midtown South, but decreased in Downtown, where the vacancy rate is the highest.



• Leading economic indexes improved. On a year-over-year basis, in 4Q05 the NYC business-conditions index increased 10.7 percent and the number of building permits authorized rose 7.8 percent.

Summary Table. Five Key Economic Indicators, NYC and U.S., 4Q05 vs. 3Q05 and 2005 vs. 2004

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