A broad-based recovery
The Empire State's improving fortunes extend across the regions of the state and across all sectors of the economyalthough, not surprisingly, the recovery is not uniform in either way.
It's well known, of course, that the financial sector centered around Wall Street has enjoyed a sustained boom in activity. That's been good news for the entire state. The wealth generated by the securities industry and its associated business and legal services flows throughout not only New York City and the metropolitan region, but upstate as well. Numerous businesses in the Saratoga-Lake George region, Columbia County and other upstate areas do well when the downstate financial sector posts big profits. (And, of course, every corner of the state gets its piece of the huge tax revenues the financial sector sends Albany.)
It may be fashionable these days to say that the state's overall resurgence has relied too heavily on Wall Street. But that's like complaining that the Yankees wouldn't be winning games if they didn't have such good pitching. Obviously, we have to make sure the other sectors of our state's economy are well-positioned for growth, as well. But the strength of the securities sector is pure good news for New York.
Besides, finance is decidedly not the only area where things are better. Our manufacturing economy is on the rebound. In 1997, for the first time in more than a decade, we added factory jobs over the year. That represents a stunning turnaround from just a few years earlier. From 1989 through 1992, New York's annual loss of manufacturing jobs ranged from 32,000 to a staggering 68,000. During just two of those years, we lost 128,000 factory jobsthe equivalent of all the industrial employment in Erie and Onondaga counties, combined.
Even better, the new growth is mainly in durable-goods manufacturing. That represents the higher-value-added half of the manufacturing sector, where jobs pay especially well.
The turnaround in manufacturing employment is not complete, however. We still lag the national growth rate in this key sector, as we do in overall employment.(1)
Table 2 shows that the pace of growth in New York during the past year grew closer to that of the nation in construction, manufacturing, trade, and the big services sector. We continued to reduce government jobs during both of the three-year periods shown, and, more slowly, in the most recent year. That trend, along with moderate growth of government jobs elsewhere in the nation, moved our huge public sector a bit closer to the size of those in other states.
|Job Growth by Sector: New York and the Nation|
|New York State||+ 5.3%||+ 4.1%||- 2.3%|
|U.S. overall||+ 4.8%||+ 13.7%||+ 12.9%|
|New York State||0.0%||- 2.9%||- 8.3%|
|U.S. overall||+ 1.2%||+ 1.6%||+ 1.5%|
|New York State||+ 0.5%||+ 2.9%||- 2.3%|
|U.S. overall||+ 2.0%||+ 5.5%||+ 6.1%|
|New York State||+ 1.4%||+ 2.9%||- 2.3%|
|U.S. overall||+ 2.3%||+ 6.7%||+ 7.5%|
|Finance, Insurance and Real Estate|
|New York State||+ 1.1%||- 2.0%||- 1.3%|
|U.S. overall||+ 3.7%||+ 4.0%||+ 3.7%|
|New York State||+ 3.3%||+ 9.2%||+ 7.9%|
|U.S. overall||+ 4.2%||+ 13.6%||+ 13.1%|
|Government (federal, state, local)|
|New York State||- 0.1%||- 2.8%||- 1.0%|
|U.S. overall||+ 1.4%||+ 2.4%||+ 4.1%|
|Figures for 1997-98 are for June of each year. For 1995-97, Dec. 1994-Dec. 1997. For 1992-94, Dec. 1991 to Dec. 1994.|
|Source: U.S. Bureau of Labor Statistics data, not seasonally adjusted. Calculations by the Public Policy Institute.|
Focusing on the private sector
Public-employee unions often complain that New York's overall performance of recent years looks less impressive if we include government jobs (declining even as the private sector grows) in the calculation,. But there would be no public-sector jobs, in the absence of taxpaying private-sector jobs. Hefty public-sector payrolls are more nearly the cause of New York's economic problems, than the cure. State leaders recognized some years ago that our public payroll was bloated, and made a conscious decision to pare it back. The same has occurred in New York City, by far the largest municipal employer in the state. In fact, the policy of shedding government jobs (overwhelmingly by attrition, not layoffs) is intended in large part to allow growth in private-sector jobs, by making it possible for taxes to be reduced.
The very act of measuring New York's economic growth is an attempt to gauge whether our changes in public policy are succeeding—whether we are making it possible for the private sector to create and keep more jobs here.
New job growth, both upstate and down
The new expansion is taking place both upstate and downstate, though in differing proportions.
As shown in Table 3, upstate lagged the statewide growth rate over the past year, growing at a rate of 0.8 percent. (Upstate, for these purposes, is defined as everything north of Rockland and Putnam counties.) New York City led the state, adding jobs at a rate of 3.0 percent in the past year.
In the New York metropolitan area, the financial-services boom discussed above is the most talked-about trend. But it is by no means the only positive sign.
In New York City, employment grew at a record pace in the first half of this year, and is expanding faster than the nation, city Comptroller Alan G. Hevesi reported recently. Besides adding some 15,000 jobs in the securities industry, the city saw significant expansion in such varied areas as motion pictures (4,600 jobs) and business services (33,100). Still, Hevesi pointed out, the city's job-growth rate was one of the lowest among the nation's largest metropolitan areas.
|Private-Sector Employment Growth:
Regions of New York State
|June 1997-June 1998||Private-sector jobs,
|Percent change||Number change|
|New York State||+ 2.0%||+ 136,500||6,851,500|
|New York City||+ 3.0%||+ 86,600||2,984,600|
|Upstate total*||+ 0.8%||+ 18,700||2,444,100|
|Albany-Schenectady-Troy||+ 0.7%||+ 2,300||328,500|
|Binghamton area||+ 1.7%||+ 1,600||94,000|
|Buffalo-Niagara Falls||+ 0.4%||+ 1,800||465,200|
|Dutchess County||+ 2.2%||+ 1,900||86,400|
|Elmira area||- 0.6%||- 200||35,400|
|Glens Falls area||+ 1.2%||+ 500||43,200|
|Long Island||+ 2.6%||+ 24,500||978,700|
|Newburgh area||+ 1.0%||+ 900||95,500|
|Rochester area||- 0.8%||- 3,900||455,800|
|Rockland County||+ 6.1%||+ 5,000||86,600|
|Syracuse area||+ 0.1%||+ 300||278,600|
|Utica-Rome area||+ 1.1%||+ 1,100||102,200|
|Westchester County||+ 1.9%||+ 6,500||340,600|
|*Upstate represents all counties north of Putnam and Rockland.|
|Source: U.S. Bureau of Labor Statistics; calculations by The Public Policy Institute|
On Long Island, "business is booming," says a longtime observer of the Nassau-Suffolk economy, Dr. Irwin L. Kellner of Hofstra University. Two key indicators, employment and home prices, have regained the peaks they first reached about a decade ago, Kellner says: "Long Island's economy has fully recovered from the prolonged downturn." The region is now more diversified than it was, with growth in areas such as software and biotechnology.
While "upstate" is often discussed as a single area, it actually represents a number of distinctly different economic regions. Several are doing well, as shown in the table. In the past year, for instance, employment is up 2.2 percent in Dutchess County, and 1.7 percent in the Binghamton area.
On the other hand, the three largest urban centers upstate—those around Buffalo, Rochester and Syracuseare struggling. The Rochester area lost private-sector jobs from June 1997 to June 1998, as did the Elmira area; the Syracuse area only grew 0.1 percent, and Buffalo-Niagara Falls 0.4 percent.
A closer look shows that much of the problem is in sectors that are heavily dependent on population growth. Each of the three major upstate regions lost employment over the past year in either trade or services, after losing population earlier in the decade. Those sectors are the largest pieces of the private-sector job market, so their movement up or down has the most noticeable effect on the overall numbers. (For more on the impact of population changes, see pages 15-16.)
Paradoxically, the three big urban communities are among several upstate regions most lamenting the lack of skilled workers. Manufacturers in those areas, as well as Jamestown, have told of having to turn away production—that is, the potential for valuable jobs and new wealth brought into the community—for lack of technical and other skilled workers.
Upstate as a whole is doing better than it was a few years ago. The 0.8 percent increase in private-sector jobs for the year ending in June 1998 is roughly double the annual average increase for 1992-94. Upstate has already made back all of the jobs it lost in the recession and is experiencing a record-high overall job count; while the currently more rapid growth in the downstate region, which fell farther and faster in the recession, has not yet made up for the recession's losses there.
It's worth keeping in mind that the various regions of New York State typically do not move in sync. In 1995, upstate led the state's recovery, growing faster than New York City, Long Island or Westchester-Rockland. Recent growth in durable manufacturing throughout much of upstate is one of the signs that the region is starting to rebound again.
Is rising inequality an issue?
Some worriers, citing statistics on "income inequality," say New York is becoming home to only the very rich and the very poor. They point to what some statistics indicate is a larger gap in the incomes of the wealthiest citizens and our poorest, compared to the gap in other states. The gap is especially noticeable in New York City, the world capital of finance and home to thousands of poor residents.
That's not news, nor is it all bad. For more than a century, we've been fortunate that our commerce and industry—most noticeably in recent years, the financial center around Wall Street—generate great amounts of wealth. Great charitable and educational institutions, from the New York Public Library to the Everson Museum of Art in Syracuse, are only one part of that legacy. Untold millions of tax revenues from rich individuals are another.
At the same time, partly because it's a magnet for immigration, New York has historically had large pockets of poverty. That's certainly not because of our public policies—just the opposite, in fact. We give more to the poor—through welfare, Medicaid and targeted programs such as the earned income tax credit—than any other state. Meanwhile, our personal income tax, estate tax and other taxes take more from the rich than virtually any other state's. Income inequalities in New York are a function of basic demographic realities, not a lack of equality-oriented government policies.
A recent paper by the Federal Reserve Bank of New York concluded that the early-1990s recession, which hit New York State far more severely than the rest of the nation, widened the gap between high- and low-income workers here, in comparison to the nationwide picture.(2) "The recession hit New York and New Jersey more severely and for a longer period than other areas of the nation, increasing the regional split between high- and low-income workers relative to the national gap," the paper said. Particularly hard-hit, according to the study, were workers with limited skills and experience, and thus limited earning power.
Another reason for unequal incomes in New York is "the strong performance of the financial services industry," with its high salaries, according to the Federal Reserve study. That growth is nothing but good news for the Empire State, generating billions of dollars in economic activity and hundreds of millions of tax dollars that pay for schools, social services and other programs. (Improving schools and other key programs such as job training is the best way to help lower-income workers share more richly in the state's wealth; see more discussion below in this report.)
The Federal Reserve also provided a bright outlook: "The region's strong performance and its favorable job developments will likely boost the earnings of workers at both ends of the spectrum." The Fed's figures show that income inequality increases during period of poor economic growth, and that lower-income workers benefit when economic growth is strong. In other words, economic growth is the most effective cure for this, as for so many of the rest, of New York's problems.
We need to do better still
So we're doing better. But that doesn't mean we can accept the status quo. That's simply not good enough for New Yorkers. Another way of saying that we haven't caught up to the rest of the nation is this:
We continue, month in and month out, to watch jobs that should be growing in New York, go elsewhere instead.
Our goal must be to keep those jobs—to capture at least our fair share of the nation's job growth.
As of now, that's not even on the horizon. The state Budget Division predicted, in a recent economic outlook, that non-agricultural employment statewide would increase by 1 percent in 1999, compared to a national rate of 1.5 percent. That would represent a continuation of the past year's improved performance relative to other states—showing New York's growth at about 67 percent of the national growth rate. Again, that's better than where we've been—but not where we want to be.
DOB's outlook is traditionally conservative, so perhaps we'll do better than predicted. On the other hand, the respected consulting firm Standard & Poor's DRI has a gloomier outlook. It predicted in June that New York's job growth from 1998 through 2002 will average only 0.4 percent annually, and will be the slowest in the nation.
Any economic forecast, of course, is an educated guess. What do we know, today, about what's likely to happen in the next year or two?
Some encouraging signs
The new growth in manufacturing jobs and the long-running boom in the financial sector, discussed earlier, can be taken as hopeful signs of new strength to come throughout the economy. Perhaps more than any other sectors, those two industries bring wealth into our communities from elsewhere. That means New Yorkers have more income to spend on consumer goods, new homes, personal services and other purchases that create jobs in wholesale and retail trade, construction and the huge services sector.
Will factory and securities jobs continue to grow in New York? It's impossible to say, but there are some encouraging signs on both fronts.
New York manufacturing companies invested more than $10 billion in new capital expenditures in 1995 and 1996, according to recently released data from the U.S. Census Bureau. That total was up 33 percent from the preceding two years. Both the dollar total and the percentage increase were among the largest in any of the 50 states.
As shown recently, the financial markets can be volatile. So there's little point in attempting a short-term prediction of their direction or volume of investment. For the long term, though, it seems likely that growth in the securities sector will continue to be strong. Mutual fund ownership is now as common among Americans as are home mortgages. We're now described as a nation of investors, and that's good news for New York. Creation of individual retirement accounts as part of the Social Security system, as is being discussed by leaders in Washington, would add trillions of additional dollars to the financial markets. That, too, would be good news for New York.
The construction industry, another leading indicator of overall economic activity, is growing again in the Empire State. After shrinking for most of the first half of this decade, including 1995, construction jobs increased by more than 7 percent during the last two years. That's important for two reasons: Such jobs pay better than most, and their growth reflects property owners' confidence that the marketplace will be strong enough to produce a good return on the investment.
Unfortunately, we're still feeling the hangover from long years of decline.
The more than half-a-million jobs that fled New York in the early 1990s drew hundreds of thousands of state residents to other locations. Our population barely grew during the first half of the decade. Almost alone among the states, we lost population in both 1995 and 1996, and barely grew in 1997. Were it not for immigration from overseas, the state's population would have fallen even more sharply. With our recent employment growth, there's a good chance the 1998 population numbers will show a real increase when the Census Bureau releases them next year—but less chance that any such growth will be near the national level.
The outcome will affect, among other things, our political clout in Washington. Our population losses in the early and mid-1990s have already made the loss of one Congressional seat in the next decade a foregone conclusion. We are likely to lose two seats, if we do not start catching up to the population growth in the rest of the nation.
More importantly, a dwindling or stagnant population is not only a reflection of a weak economy, but harmful in itself. It means fewer opportunities for New Yorkers to make a living serving the needs of their neighbors. That's partly why we've lagged in key industries such as home construction. Every year from 1994 through 1997, the number of new, privately-owned housing units authorized in New York was less than 2.5 percent of the national total—even though our population is close to 7 percent of the nation's. Home construction is one of the few sectors where higher education is not essential to find a good-paying job, nor lots of capital to start a good business. If we continue seeing low demand for homes and home-building jobs, we will continue to watch thousands of young workers and entrepreneurs move elsewhere in search of opportunity.(3)
The same risk of further exodus holds true for New Yorkers who might be employed in the trade and services sectors, which together make up more than half of all job opportunities in the state. Supermarkets, restaurants, department stores and other retail outlets don't need as many workers as they would if our population were growing; nor do auto repair shops, movie houses or dry cleaners.
Attracting and building more growth in the sectors that generate wealth or bring it in from outside—such as manufacturing, finance, technology development, and high-end business services—will produce more growth in other areas of the economy. That's the kind of virtuous cycle we need.
Are we taking the steps necessary to continue moving toward such a cycle—to make the future more in keeping with the Empire State's proud past?
2. Current Issues in Economics and Finance: Second District Highlights. July 1998.
3. One encouraging sign: Chase Manhattan Bank's Financial Digest reported recently that housing sales are picking up throughout the state after years of stagnation.
The Public Policy Institute of New York State, Inc.
111 Washington Avenue, Suite 400 | Albany, New York 12210-2289 | 518-465-7511