Market Narratives: New York Metro - Economy

Q1 2013 Economy: New York Metro

The annual rebenchmarking process brought good news for the New York City economy. According to annual average Current Employment Survey (CES) data as released by the U.S. Bureau of Labor Statistics (BLS), the city's 2012 private employment level finally surpassed the historic peak of 1969, prior to the urban decline era of the 1970s. The revised data also show more employment growth in recent years than previously recorded, with total employment increasing by 86,700 (2.3%) from 2010 to 2011 and 79,500 (2.1%) from 2011 to 2012. Needless to say, the employment losses of the Great Recession, mild here compared with the far worse damage in the 1970s and early 1990s downturns, have been more than completely reversed.

More recent CES data, however, show the city's employment gains have slowed. From February 2011 to February 2012, according to this source, total employment increased by 89,900 (2.4%) and private employment grew by 91,500 (2.9%). But from February 2012 to February 2013, total employment increased by 48,700 (1.3%) and private employment increased by 50,900 (1.6%). The job growth rate, in other words, have fallen by nearly half. Most of the added jobs may be going to suburbanites rather than city residents. Household-based data from the BLS show the number of employed city residents, including the self-employed, increased by just 15,750 (0.4%) from February 2012 to February 2013. With less opportunity and a rising cost of living, the city's labor force fell according to this source.

This is, in part, a national slowdown as the debt-driven economic stimulus by the federal government gradually abates, but there is also a slowdown in finance that has greater effect on New York City. According to the city's Independent Budget Office as quoted by Crain's New York Business, "in good times, Wall Street accounted for 10% of the city's job growth but 57% of wage growth. In the future, it's expected to comprise 1% of job growth and 19% of wage growth." Even that may be optimistic. "Average wages, at $333,000, remain quite high, but they have declined by 23% since 2007 in inflation-adjusted terms." Investors in financial firms, and Wall Street's customers, may continue to demand reductions. "Although banks and brokerage firms generated $24 billion in earnings last year, those gains were almost entirely reliant on ultra-low interest rates courtesy of the Federal Reserve, which reduced the banks' funding costs by more than 90%. But revenues for the industry last year clocked in at only $162 billion, or less than half of 2007's $352 billion." Employment in the Financial Activities sector fell by 5,100 (1.2%) from February 2012 to February 2013 according to CES data, with a steep drop of 4,000 (2.4%) in the Securities, Commodity Contracts, and Other Financial Investments industry, its highest paid component.

Other office-based sectors show mixed trends. While the Professional and Business Services sector added 26,500 jobs (4.4%), a strong gain, much of that was in the Administrative and Support and Waste Management industry, which added 16,400 (8.5%). The Motion Picture and Sound Recording industry lost 3,500 jobs (7.3%) and the broader Information sector lost 4,400 (2.5%) in total.

While employment gains have been strong in New York City, for most city residents income gains have not. According to American Community Survey data, the median household income of city residents fell 6.1% from 2007 to 2011 without even accounting for inflation. The median work earnings of the city's resident workers also fell 6.1%, mostly due to reductions in hours worked. Measured by household average income, Moody's put the 2012 increase at 1.7%, or less than the rate of inflation. Sooner or later this trend is bound to affect the consumer-driven sectors, despite the spending of tourists and those at the top. Accordingly the Leisure and Hospitality sector gained just 3,500 jobs (1.0%) year-over-year in February, and Retail Trade added 9,500 (3.0%), solid increases but down from those of the previous 12 months.