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New York City's economy was in worse shape prior to the 9/11 attack than first thought, according to New York Fed economist Jason Bram. Job losses in the city, he argues, were larger than initially estimated between January 2001 and the time of the attack; income data for that period--not available until the following year--also pointed to a sharp slowdown.
Bram observes that the city's economy was slowing sharply before September 11. Preliminary data from the New York State Department of Labor indicate that private-sector employment by September 2001 had fallen by 55,000 from its January 2001 peak. In fact, Bram estimates that the Department's upcoming benchmark revisions for that period will show that pre-attack job losses were higher. His estimates are based on the Department's more complete tabulation of insured employment, now available through mid-2002.
Bram concludes that the national economy and the financial markets--forces that sustained the city's late 1990s boom--played a large role in the contraction.
Bram's study acknowledges that substantial job and income losses occurred in the months immediately following the attack. Private-sector employment in the city fell by 51,000 in October 2001 and by an additional 41,000 through March 2002, according to the New York State Department of Labor. Bram does not expect these post-attack job-loss figures to be revised significantly.
Income growth in the private sector--particularly in the securities industry--was also slowing sharply prior to the attack and declined substantially after it. Bram explains this drop should be seen in context, as it came on the heels of extraordinary growth in 2000 and reflected swings in bonus payments, which are tied to financial market performance.
Bram adds that employment in the city stabilized by spring 2002, suggesting that the economic disruption from the attack had run its course. Nevertheless, renewed signs of weakness in late 2002 indicate that a cyclical recovery is not yet under way.
Looking ahead, the study contends that New York City's near-term economic, as well as fiscal, outlook will likely be driven largely by the national business cycle and trends in the financial markets. On a more positive note, crime rates continued to decline in 2002 while the housing market remained strong. These quality-of-life indicators, says Bram, suggest that the positive secular trends that were evident in the 1990s are still intact, and that ongoing weakness in the local economy is a cyclical phenomenon.
Jason Bram is an economist at the Federal Reserve Bank of New York.