December 2003
By ROBERT PEGG
A recent report by the New York Federal Reserve Bank projects that after two-and-a-half years of employment decline, New York City's economy may be improving. According to the report, the city is expected to display moderate employment gains in the second half of 2003. In 2004, Federal Reserve forecasters see a 0.6 percent gain or an increase of about 20,000 jobs. Professional and business services Ð a sector that includes computer analysts, high-tech workers and systems developersÑan important component to the city's job growth in the late 1990sÑshould see increased demand that will help stimulate the local economy.
The Federal Reserve's forecast comes on the heels of a Securities Industry Association update, which believes that the securities industry is turning around. The long slide in industry performance, which forced dramatic cost cutting efforts and layoffs over the past three years, is giving way to better news. With profits recovering and expected to stay strong in the near term, Wall Street compensation is rising and employment gains are expected for the industry as a whole by the end of the year. This is particularly good news for the New York State and New York City economies, which are heavily dependent on tax revenues and economic stimulus provided by Wall Street spending. The financial services industries suffered the most job losses during the economic downturn and hopefully the Wall Street revival will pull New York City out of its three-year recession.
A sustained rebound in the stock market and stronger pre-tax profits could boost Wall Street employment since financial market activity, historically, has been associated with expanded financial employment, as well as with increased demand for banking, legal, marketing, real estate and leisure time services. Indeed, preliminary data suggest that a recovery in revenues is underway and the securities industry now anticipates more than double pre-tax profits in 2003 compared with 2002.
The expected recovery in New York City is good news, particularly because private sector employment in the New York-New Jersey region had fallen by about 390,000 jobs or 3.6 percent from its peak at the end of 2000. This decline was about half the size of the region's employment loss during the 1989-92 downturn, but was more severe proportionally when compared with job losses in the nation. Many of the job losses in the region were associated with adverse developments. The bursting of the dot.com bubble, the slowing volume of initial public stock offerings, and a slowdown in mergers and acquisition activity had begun to depress the region's business and service sectors. The national recession made conditions worse. The pace of employment decline accelerated in the fourth quarter of 2001 and early 2002 as a result of the job losses associated with the attacks on 9/11. However, in late 2002, the pace of job loss began to ease, and have essentially followed the nation's path of moderate decline.
Within the New York metropolitan region, the major job losses were concentrated in New York City. After expanding at a significantly faster rate than the nation in 1999 and 2000, employment levels in the city fell sharply in 2001, a result of a drop in the financial markets, the losses in dot.com industries, and the disruption and aftermath of 9/11. Although the city's job decline was less severe than the 1989-92 downturn, employment was still off by 225,000 jobs (six percent) from its peak at the end of 2000. Job losses in New York State as a whole were less severe during this downturn, because the city's suburbs of Nassau and Westchester counties fared relatively well. In this recession, there was no overbuilding of commercial real estate; moreover, this time around, the federal government was expanding, not contracting as it did in the early 1990s, after the end of the Cold War.
Despite the more positive report, however, it is uncertain how far the financial rally will extend. In addition, the recession has strained state and local budgets, many of which have implemented tax increases and spending reductions to keep their budgets balanced. If job growth turns out to be less than anticipated, fiscal stress could worsen. However, should a more rapid recovery develop on Wall Street, or should the national economy grow faster than anticipated, then the outlook for local job growth, too, will brighten.
About the author: Mr. Pegg is president of Kirkbride Asset Management, the New York City-based investment advisory firm which serves businesses, institutions and private individuals.