1

Briefing on the Regional Economy

Presented to the New York State Network for Economic Research

Rockefeller Institute for the Study of the States Albany, New York

Rae D. RosenAssistant Vice President

Federal Reserve Bank of New YorkMarch 30, 2005

2

Key Points:

• Our coincident economic indicators show that a moderate economic recovery continues underway in New York State and New York City.

• The pace of the recovery is on par with prior recovery periods in terms of output.

• Employment continues to recover more slowly than output in New York State and New York City and the rebenchmark revisions lowered the already low rates of job growth in New York City.

• Our forecast calls for a continuation of this trend: a moderate pace of recovery in output this year and next coupled with a slowly improving job market.

•This economic pattern suggests that the distribution of wage gains, income growth and migration will become increasingly important to the economic health of NYS and NYC.

3

105

115

125

135

145

155

95 96 97 98 99 00 01 02 03 04 05

105

115

125

135

145

155

INDEXES OF COINCIDENT ECONOMIC INDICATORS

Index July 1992=100

Note: Shading denotes state or local recession.Source: FRBNY.

Peak inDecember

2000105

115

125

135

145

155

95 96 97 98 99 00 01 02 03 04 05

105

115

125

135

145

155

105

115

125

135

145

155

95 96 97 98 99 00 01 02 03 04 05

105

115

125

135

145

155Index July 1992=100

Index July 1992=100

Peak inJanuary

2001

New York City

New Jersey

New York

Peak inNovember

2000

4

100

103

106

109

112

115

0 2 4 6 8 10 12 14 16 18 20 22 24

Number of Months

Index

Expansion Patterns Increase from CEI Trough to Peakfor the First 24 months

Source: FRBNY.

New York State

100

102

104

106

108

110

0 2 4 6 8 10 12 14 16 18 20 22 24

Number of Months

New York City

Aug. 2003 – Jan. 2005

Nov.1965- Oct. 1969

Nov. 1971- Feb. 1973

Aug. 1992- Jan. 2001

Nov. 1976 - Apr. 1989

Dec. 1982- Apr. 1989

Jul. 1980-Aug. 1981

Nov. 1965-

Oct. 1969

Oct. 1992-Dec. 2000

July 2003- Jan.2005

Oct 1976-

Feb.1980

Oct. 1971-Jun. 1973

Index

5

-4

-2

0

2

4

6

8

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

-4

-2

0

2

4

6

8

New York State Real Per Capita Personal Income 1978 – 2004

Source: U.S. Bureau of Economic Analysis, FRBNY Calculations.

PercentYr/Yr

PercentYr/yr

NYS Real GSP

NYS Real per Capita Personal Income

6

Recent Trends in Regional EmploymentPercent change from 12 months earlier

-6

-4

-2

0

2

4

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-6

-4

-2

0

2

4

Percent Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

NYC

NYS

US Mar. ‘05 = 1.6%NYC Feb. ’05 = 0.9%

NYS Feb. ’05 = 1.0%

US

7

Source: Bureau of Labor Statistics, FRBNY calculations.

-6

-4

-2

0

2

4

6

92 93 94 95 96 97 98 99 00 01 02 03 04 05

-6

-4

-2

0

2

4

6

Private-Sector Job Growth: U.S. and RegionPercent change from 12 months earlier

NYC

USUS

Percent Percent

US Mar. ‘05 = 1.8%NYC Feb. ’05 = 1.2% NYS Feb. ’05 = 1.2%

NYS

8

New York State Employment Percent change from 4 quarters earlier

-3

-2

-1

0

1

2001Q2 2001Q4 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4

-3

-2

-1

0

1

Percent Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

Covered Employment

Non-farm Employment

9

New York City Employment Percent change from 4 quarters earlier

-5

-4

-3

-2

-1

0

1

2001Q2 2001Q4 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4

-5

-4

-3

-2

-1

0

1

Percent Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

Covered Employment

Non-farm Employment

10

New York City Information Employment Percent change from 4 quarters earlier

-20

-15

-10

-5

0

5

10

2001Q2 2001Q4 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4

-20

-15

-10

-5

0

5

10

Percent Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

Covered Employment

Non-farm Employment

11

New York City Financial Activities Employment Percent change from 4 quarters earlier

-10

-8

-6

-4

-2

0

2

2001Q2 2001Q4 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4

-10

-8

-6

-4

-2

0

2

Percent Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

Covered Employment

Non-farm Employment

12

New York City Professional & Business Services

Employment Percent change from 4 quarters earlier

-12

-9

-6

-3

0

3

2001Q2 2001Q4 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4

-12

-9

-6

-3

0

3

Percent Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

Covered Employment

Non-farm Employment

13

Growth in Service Jobs% change January 2005/ January 2004

U.S.* NJ NYC NYS

Business and Professional 3.8 0.6 1.1 1.6

Security/Commodity Broker 3.1 3.4 5.0 2.9

Leisure and Hospitality 2.3 3.6 3.9 3.1

Arts, Entertainment and Recreation -2.3 9.2 4.2 6.0

Accomodation and Food 3.0 2.7 3.8 2.4 Eating and Drinking 3.1 3.5 4.8 2.5 Accommodations 2.7 0.6 0.0 1.9Health and Social 2.3 3.2 2.3 1.8Educational 2.6 1.6 1.3 3.2All Services 1.9 1.9 1.4 1.4Services as % of Total Employment 83.6 87.6 93.9 89.5

Source: Bureau of Labor Statistics, FRBNY calculations.

Note: U.S. data are for February 2005.

14

Second District Employment ForecastPercent change from 12 months earlier

2002 2003 2004 2005F

New Jersey -0.3 -0.1 0.6 1.6

New York City -2.9 -1.4 0.3 1.1

New York State -1.6 -0.6 0.5 0.9

Note: F denotes forecast,Source: Bureau of Labor Statistics; Federal Reserve Bank of New York forecast.

15

Second District Unemployment Rates

Feb. 2004 Jan. 2004 Feb. 2005

United States * 5.6% 5.7% 5.2%

New Jersey 5.3% 5.4% 4.4%

New York 6.2% 6.3% 5.1%

New York City 7.7% 7.9% 6.2%

Note: U.S. data are for March 2005Source: Bureau of Labor Statistics.

16

-6

-4

-2

0

2

4

6

8

10

12

14

16

1992 1993 1995 1996 1998 1999 2001 2002 2004

-6

-4

-2

0

2

4

6

8

10

12

14

16

Percent

United States

NYS

Percent

Wages and SalariesPercent change from 4 quarters earlier

United States 2004 Q4 5.4%New York 2004 Q4 6.0%New Jersey 2004 Q4 5.1%

Source: Bureau of Labor Statistics, FRBNY calculations.

NJ

17

Personal IncomePercent change from 4 quarters earlier

-2

0

2

4

6

8

10

12

14

1992 1993 1995 1996 1998 1999 2001 2002 2004

-2

0

2

4

6

8

10

12

14

Percent

United States

United States 2004 Q4 6.7%New York 2004 Q4 6.8%New Jersey 2004 Q4 6.5%

Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

NJ

NYS

18

Home PricesPercent change from 4 quarters earlier

-5

-3

-1

1

3

5

7

9

11

13

15

17

19

1992 1993 1995 1996 1998 1999 2001 2002 2004

-5

-3

-1

1

3

5

7

9

11

13

15

17

19

Percent Percent

Source: Office of Federal Housing Enterprise Oversight.

United States

United States 2004 Q4 11.2%New York 2004 Q4 12.6%New Jersey 2004 Q4 13.7%

NYS

NJ

19

Consumer Price IndexPercent change from 12 months earlier

0

1

2

3

4

5

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0

1

2

3

4

5

Percent Percent

Source: Bureau of Labor Statistics, FRBNY calculations.

United States

United States Feb. '05 3.0%New York-Northern NJ Feb. '05 3.9%

New York-Northern NJ

20

$0.31

$0.38

$0.41

$0.82

$1.83

$0 $1 $2 $3

Billion

Top 5 Metropolitan Areasby Venture Capital Investments

Q4 2004

Source: PricewaterhouseCoopers MoneyTree Survey, Q4 2004.

Silicon Valley

New England

Southeast

DC/ Metroplex

LA/Orange County

21

Top 5 Investment IndustriesFor Venture Capital Firms in

Q4 2004

Source: PricewaterhouseCoopers MoneyTree Survey, Q4 2004.

$146

$156

$260

$323

$567

$0 $145 $290 $435 $580

Million

Software

SemiconductorsNetworking and Equipment

Medical Devices and Equipment

Biotechnology

$17

$20

$26

$59

$70

$0 $50 $100

Million

Networking and EquipmentSoftware

Telecommunications

BiotechnologyMedical Devices and Equipment

Silicon Valley Area

New York Metro Area

22

Top Five States for R&D Funding

Total Funding($ millions) Total* Federal* Industry*

Expenditures Obligations Expenditures

California 51,390 1450 440 1120Michigan 15,080 1500 125 1345Massachusetts 14,320 2225 725 1600Texas 14,225 645 150 485New York 13,355 700 195 480

New Jersey 13,020 1510 235 1340

Dollars Per Capita

Source: National Science Foundation, FRBNY Calculations, 2002.*Federal expenditures not available and Federal obligations may not equal expenditures so the columns are not additive.

23

HouseholdMedian Adjusted Gross Income

Source: Internal Revenue Service, Statistics of Income.

Leaving Entering Net Leaving Entering Net

2000 $27,800 $26,622 -$1,178 $35,128 $35,511 $383

1999 $26,038 $24,906 -$1,132 $32,913 $33,781 $868

1998 $25,196 $24,056 -$1,140 $31,731 $32,592 $861

1997 $23,911 $22,837 -$1,074 $29,451 $30,392 $941

1996 $23,083 $21,934 -$1,149 $28,088 $29,123 $1,035

1995 $22,808 $21,570 -$1,238 $27,322 $28,206 $884

New York New Jersey

24

Migrant TaxpayersAggregate Adjusted Gross Income

$ Billions

Source: Internal Revenue Service, Statistics of Income.

Leaving Entering Net Leaving Entering Net2000 $23.9 $19.7 -$4.2 $15.8 $14.0 -$1.81999 $19.3 $16.1 -$3.2 $12.3 $11.1 -$1.21998 $17.8 $14.5 -$3.3 $11.2 $10.5 -$0.71997 $16.3 $12.9 -$3.4 $10.1 $9.1 -$1.01996 $15.6 $11.6 -$4.0 $9.4 $8.5 -$0.9

New York New Jersey

25

Points of Concern Longer Term:

• NYS has the fastest rate of out-migration of seniors. The rate has increased 2 ½ % from 1985-90 to 1995-2000 as the population has aged.

• NYS has a very rapid rate of foreign immigration of younger working age people and this contributes to a reasonably strong trend in births in NYC.

• NYS and NYC have a high rate of out-migration of young prime working age people. However, there is evidence that this is a cyclically sensitive phenomena.

• The out-migration of seniors and foreign immigration, coupled with a strong rise in births, have slowed the rate of aging in NYS and NYC compared to the nation.

• On balance we are accelerating the export of our wealthier population and importing a less wealthy, less educated population.

•We are failing to obtain our fair share of federal R&D spending. We have yet to capitalize on the potential in changing freight patterns.

26

Appendix

27

0

500

1000

1500

2000

2500

3000

3500

J F M A M J J A S O N D

2002

Sales Tax Revenue CollectionsYear to Date

Mil $ Mil $

2003

0

1500

3000

4500

6000

7500

J F M A M J J A S O N D

2002

2003

New York City New York State

2004

2004

Source: New York City Department of Finance, Office of the New York State Comptroller.

Feb. 2005 YTD 6.4% Feb. 2005 YTD 7.8% 20052005

28

0

5000

10000

15000

20000

25000

30000

J F M A M J J A S O N D0

1000

2000

3000

4000

5000

6000

J F M A M J J A S O N D

2002

Personal Income Tax Revenue CollectionsYear to Date

Mil $

Source: New York City Department of Finance, Office of the New York State Comptroller.

2003

20022003

Mil $

New York City New York State

2004

2004

Feb. 2005 YTD 14.2% Feb. 2005 YTD 11.4%

20052005

29

Percent of Residential Mortgage Loans with Installments 90 Days Past Due

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

92Q2 94Q4 97Q2 99Q4 02Q2 04Q4

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

PercentPercent

Source: Mortgage Bankers Association.

United States 2004 Q4 0.80%New York 2004 Q4 0.58%New Jersey 2004 Q4 0.63%

United States

NJ

NYS

30

Percent of Residential Mortgage Loans in Foreclosure Started During the Quarter

0.0

0.5

1.0

1.5

2.0

2.5

3.0

92Q2 94Q4 97Q2 99Q4 02Q2 04Q4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

PercentPercent

Source: Mortgage Bankers Association.

United States 2004 Q4 1.11%New York 2004 Q4 1.03%New Jersey 2004 Q4 1.03%

United States

NJ

NYS