Hudson Valley Review

Second Quarter 2002

Marist College

Dr. Ann Davis, Director
Bureau of Economic Research
School of Management
Poughkeepsie, NY 12601

September 2002

The assistance of Scott Bergen and Jeff McAulay is acknowledged and appreciated.


Table of Contents

Second Quarter 2002

Summary and Highlights
National Review
Hudson Valley Review

Second Quarter 2002 Exhibits

U.S. Nonfarm Employees

Employment

Production Workers

Home Sales

Tourism

Stewart and Westchester Airports

Consumer Price Index

Temporary Assistance - First Quarter 2002

Special Focus - Local Public Finance for Mid-Hudson Counties - 1989 and 2000

 


Summary and Highlights
Hudson Valley Review - Second Quarter 2002

  • While the U.S. continues to lose jobs from year-ago levels, the Hudson Valley experienced modest job growth.  Jobs held by residents grew by 1.8%, with gains in all counties, while jobs located in the region grew more slowly, a scant .22%, with a mixed pattern across the counties. 
  • The region lost 4% of its manufacturing jobs from one year ago, with losses in this sector in all counties.  Manufacturing is now less than 10% of the region 1970s.
  • The regional unemployment rate, at 4%, is lower than the state and the U.S., but a full percentage point higher than one year ago.
  • Average hourly earnings of production workers increased by a modest 1.6%, with a mixed pattern across the region.  Only Newburgh had decreases in weekly earnings, with declines in both hourly rates and weekly hours. 
  •  The number of homes sold increased over year-ago levels at more than 3%, nearly matching the pace of sales at the national level.  Although the sales pattern was mixed throughout the region, the average and median prices increased in every county.  The average number of residential construction permits decreased by roughly one third from one year ago, while the average value per permit increased.
  • The number of visitors taking tours at the Roosevelt/Vanderbilt site increased slightly from one year ago, with a mixed pattern across the sites.
  • Stewart passenger traffic declined from one year ago by roughly 15%, while cargo decreased in the range of 50%.  The announcement of a new low cost carrier is expected to boost passenger traffic in the next quarter.  Westchester county airport passenger traffic declined in the range of 8%.
  • Bankruptcies in the Hudson Valley increased slightly, while filings decreased elsewhere in New York State.
  • Sales tax revenue rose less than one percent, with a mixed pattern across the region. 
  • Inflation in the second quarter was lower in the New York/New Jersey Metropolitan area than the same quarter last year, but more rapid than the average for all U.S. cities.
  • While total recipients and expenditures for the major welfare program, Temporary Assistance for Needy Families, continued to decrease, there were substantial increases in recipients and payments for the safety net, a New York State program.  Recipients and expenditures for Supplemental Security Income and Food Stamps also increased, a sign of the impact of the national recession.

 

 Special Focus: Municipal Finance

  • Nearly half of municipal revenues are raised by property and sales tax, and nearly a third are from state and federal sources.  In times of fiscal deficits at the state and federal level, and a slowing economy, revenues for vital local services and jobs can be affected, with government constituting the third largest employment sector in the region.   The largest categories of expenditures are economic assistance, health, and police.  There has been a general shift in the last decade toward reducing reliance on property taxes and increasing reliance on sales taxes as a share of total revenues.  In some counties, this shift has been quite dramatic, including Dutchess and Orange.

 

Prospects

  • The regional employment and housing sectors remain steady, while manufacturing jobs are decreasing, a pattern similar to the national one.   The prospects are for continued weak to modest growth, with job growth slower than the labor force, and a continued increase in the unemployment rate.

 

Second Quarter, 2002

National Review

 

Real Gross Domestic Product expanded by 1.1% in the second quarter, according to preliminary estimates, down from a growth rate of 5% in the first quarter.   According to revised estimates, the recession of 2001 lasted three quarters, with declines in GDP from first to third quarter of 2001.

Personal consumption expenditures increased by 1.9% in the second quarter, down from 3.1% in the first, and 6% in the fourth.  Gross private domestic investment increased by 8.3% in the second quarter, down from 18.2% in the first, but significantly higher than the six quarters of consecutive declines registered from third quarter, 2000, through fourth quarter, 2001. In spite of the overall declines in investment, equipment and software increased by 3.1% in the second quarter, the first positive gains since fourth quarter, 2000,  and residential investment grew by 2.3% in the second quarter.

Exports grew by 12.3% in the second quarter, but nearly half as much as imports.  Overall government expenditures increased by 1.4% for the second quarter.  Federal expenditures increased by 7.7%, while state and local government expenditures actually declined by 1.8%. 

The implicit price deflator for GDP increased by 1.1%, down from 1.3% in the first quarter.

The intended federal funds rate has remained at 1.75% since December, 2001, down from 6.5% in late 2000.  In inflation-adjusted terms, the federal funds rate is almost negative, reducing the flexibility for further interest rate reductions.  The conventional mortgage rates have declined from 8.5% in mid-2000 to 6.5% in second quarter, 2002. 

The Employment Cost Index has moderated since the spring of 2000, and productivity growth has continued to be strong.  The Employment Cost Index increased by 4% for all civilian workers for the twelve months ending June, 2002, down from 4.4% in June, 2000.  A similar pattern held for private industry, while state and local government workers total compensation has remained steady in the range of 3.6% during that period.  Benefit costs are increasing more rapidly than wages and salaries, with a growth rate of 5% for all civilian workers for the year ending in June, 2002.  Productivity increased by 4.7% in the second quarter for nonfarm business, compared with one year ago.  This is the highest growth rate in at least two years, and is unusually strong for a recovery period.  This increase was higher than the gain of 4.4% in the first quarter.  A similar pattern held for manufacturing productivity, where the second quarter increase of 5.3% was enough to reduce unit labor costs by 1.8% for the quarter.

The Congressional Budget Office has projected that a federal budget deficit will persist through 2006, a significant shift from the previously predicted 10-year surplus of $5.5 trillion when President Bush first took office.  The presence of a large budget deficit compromises the fiscal capacity to wage the War on Terrorism and the fiscal policy options to stimulate the economy by deficit spending.

At 8,663.5, the Down Jones Industrial Average for August showed the fifth consecutive month to register a decline, a pattern which has not occurred since September, 1981.  Ending August at 1,314.85, a similar pattern held in the NASDAQ, a pattern not seen since April 1984.  Investors withdrew a record $52.6 billion from stock mutual funds in July, which at 1.7% constituted the largest percent decrease since October, 1987.  With the recent influx of funds from the stock market to the bond market, the 10-year Treasury bond rate hit 3.967% in early September, a 39 year low.

Perhaps due to a war scare, the price of oil was again near $30 dollars a barrel in August, up from $18 in January, 2002, based on New York Mercantile Exchange crude-oil futures.

Due to corporate accounting scandals, the growing trade deficit, and the slower economy, the dollar has declined 7% since April, according to a composite index of major trading partners.  The annual U.S. current account deficit is near 5% GDP, and the net international investment position, or the net financial claims of foreigners against the U.S., is approaching 19% of GDP.

 

 

The Leader of the Free World

 

The recent discussion in the press of the prospects of an invasion of Iraq highlights the importance of oil as a commodity, and the role of military power for the U.S., as the world Often war is a stimulus to the economy, with increased defense spending and military employment.  In the case of Iraq, there are also considerable risks, which include an increase in the price of oil, an increase in terrorism, and a re-shifting of global alliances.  Rather than isolate Iraq from its Middle East/OPEC allies, such a war may isolate the U.S., as OPEC and Europe, including Russia, become closer in opposition to U.S. unilateralism.   With the additional dimension of religious solidarity, the Asian countries with Muslim majorities could also join such an alternative coalition. And of course terrorism is a weapon of considerable force, as well, although of the low tech variety.

The strategic elements of the U.S. in the world economy also include the dollar as the world currency, as well as the largest consumer market.  As Europe consolidates, the euro gains strength, and China opens to world trade and investment, these assets are no longer so unique to the U.S.  The continuing U.S. trade deficit and recent weakness in capital markets also tend weaken the role of the dollar.  Further, the U.S. alliance with dictatorships, such as Saudi Arabia and Pakistan, along with its opposition to global ecological accords, although strategic in the short run, weaken the moral foundation of the U.S. leadership.  Even the process by which the U.S. decides to engage is war is an illustration of the strength of democracy and our role as a model for other countries.  The President without consultation with Congress is an illustration which disturbs the image of a free people whose representatives are involved in key decisions about the future of the country and the world economy.

Oil represents the old economy, of empire, military power, and control.  The new economy, based on educated workers and continuous innovation, alternative fuels and new industries, depends on minimum standards of living and widespread access to health and education.  The present weakness of the U.S. commitment to improvement of global standards of living and to the achievement of ecological balance makes prospect of this new age ever less likely.

 

Hudson Valley Review

Employment and Earnings

            Place of Residence

 

Although the national economy has continued to lose jobs, the total number of jobs held by residents in the Hudson Valley grew by1.8% in the second quarter of 2002, compared with one year ago.  The gains were observed in all counties, with the largest rate of increase in Greene, Putnam, and Sullivan. The labor force grew by 2.85%, more rapidly than the increase in jobs, so that the regional unemployment rate also increased.  The 4% unemployment rate for the region, although a full percent higher than one year ago, is still lower than New York City, New York State, and the U.S.

The urban unemployment rates continued to be higher than the counties as a whole, although the City of Poughkeepsie improved relative to Dutchess County, compared with one year ago.

 

            Place of Work

 

Jobs actually located in the region grew more slowly, with an increase of only .22%.  The gains were in government, construction, trade, and services, with declines in manufacturing, finance, and transportation.   New York City and New York State had decreases in total employment.

With the continuing decline of manufacturing jobs in the region, manufacturing now comprises less than 10% of the total employment, and is fourth behind services, trade, and government as the top three sectors.  The manufacturing sector showed a decrease of 3,660 jobs from one year ago, a decline of 4%, with losses in every county in the region.  Although some job losses have occurred in recent months, additional employment is planned at such installations as IBM Dutchess and the Regeneron Pharmaceuticals facilities in Westchester.

The counties with the most rapid job gains were in Greene and Putnam, with actual declines in Columbia and Dutchess.  In Greene the largest gains were in construction and transportation, and in Putnam the largest gains were in trade, government, and finance.  In Columbia and Dutchess the largest losses were in construction and manufacturing.

 

            Hourly Earnings

 

The average hourly earnings of production workers increased for the region by an average of 1.6% from one year ago, with a mixed pattern across the various areas for which data is available.  The largest gains were in Dutchess, with losses in Newburgh and Westchester.  The regional increase of 1.6% was barely ahead of inflation, and slower than the wage gains in New York City, New York State, and the U.S. Weekly hours were stable on average, with increases in two areas and decreases in three.  The combined effect produced modest gains in weekly earnings of 1.6%, with a decline in Newburgh, where both earnings and hours decreased.

The Hudson Valley average hourly earnings, which had historically exceeded the U.S. average, has not kept pace in the last two quarters.  The Hudson Valley pay rate also fell short of the New York State average, but remains above the New York City average.

 

            Home Sales and Prices

 

The number of homes sold in the region increased by 3.2% compared with one year ago, nearly the pace of the U.S., while New York State declined.  There was a mixed pattern across the region, however, with  large gains in Putnam and Greene, and sizeable declines in Ulster and Columbia.  The average selling price increased in all counties, nonetheless, with an overall gain for the region of 18.5%.  The greatest difference between average and median prices was in Ulster and Greene, suggesting a preponderance of homes sold at the higher end of the price range.

The average number of construction permits declined in the second quarter from one year ago, mostly due to decreases in Westchester, Columbia, and Rockland, for single family and for all residential construction.  The average value per permit increased, however, from $177,230 for a typical single family home in second quarter, 2001, to $201, 575 in second quarter, 2002, or a 13.7% increase.  The value for all residential construction increased by 20% over the same period.

 

            Tourism

 

In the aftermath of September 11, 2001, there was a distinct impact on national tourism industries.

 

Nonetheless, the number of visitors taking guided tours at the Roosevelt/Vanderbilt National Historic Sites increased slightly from year ago levels, primarily due to visitation at the FDR home.  The total number of visitors, including both tours and grounds decreased slightly, with the Eleanor Roosevelt site showing the largest decrease.

 

            Regional Airports

 

The number of passengers at Stewart Airport decreased by less than 20% in the second quarter, from one year ago, while cargo declined by nearly 50%.  Westchester County Airport had smaller declines in passenger traffic, less than 10% compared with last year.

 

            Bankruptcies

 

The number of bankruptcies in the region increased by 1.25% in the Hudson Valley over one year ago, while other regions in the state showed declines.  Still, the increase was small by historic standards.

 

            Sales Tax Collections

 

Sales tax collections, one indicator of retail sales in the region, increased less than one percent from year ago levels.  The number of counties with increases nearly matched those with declines, in a mixed pattern across the region.  The largest gains were in Putnam and Rockland, while the largest decreases were in Greene and Ulster.

 

            Consumer Price Index

 

From increases in the first quarter, the consumer price index declined sharply in the second quarter, for the New York/New Jersey Metropolitan Area.  The pattern for all U.S. cities was similar, but at lower levels than the metropolitan area.  The year-to-date inflation for the metropolitan area was 2.3% while it was only 1.3% for all U.S. cities.

 

            Transfer Payments

 

Although the total number of recipients for Temporary Assistance for Needy Families (TANF) decreased for most counties except Sullivan, Putnam, Ulster, and Greene, the number of Safety Net recipients increased in all counties for the first quarter, 2002.  The Safety Net is a New York State program specifically for recipients who have exhauster their federal benefits, which operate under time limits since 1996.   The total expenditures for TANF decreased for the region as a whole, but increased for a majority of counties.  Safety net expenditures increased for the region as a whole.

The other income transfer programs, Supplemental Security Income (SSI) and Food Stamps, also increased for the region in both recipients and expenditures for the first quarter, compared with year-ago levels.   Expenditures for SSI increased by nearly 4% from year-ago levels, while expenditures for Food Stamps increased by 7.6% for the region.

 

Special Focus - Local Public Finance

 

One of the most important factors in competitiveness is the quality of local services, such as roads, water and sewer, police, and health care.  These functions are largely performed by county and local governments, which must raise revenues to finance them.  Yet the relatively high level of local taxes in New York State is arguably one of the cost factors which discourage new business formation and attraction.  Further, as the third largest employment sector in the region, with almost 20% of total employment, government is a significant employer, and often more secure than the private sector. The recent increases in state and federal deficits, as well as the large and growing use of contractual services, will tend to affect that overall stability, however.  To begin to understand the issues involved in local  government expenditures and finance, this special focus is exploring historic patterns in local finance in the region, for the most recent period for which data is available, 1989 to 2000.

 

            Revenues

 

The region as a whole collected $3.08 billion in revenues for local government in 2000, up by 8% from the $2.87 billion in 1989, in 2000 dollars.  The most rapid gains were in Columbia, Putnam, Sullivan, and Ulster counties, with increases exceeding 40%.  Greene, Orange, and Dutchess followed with increases of 20% or more.  Rockland county increased only by 14% and Westchester declined in real terms by 11%.    Even correcting for population growth, Columbia,  Putnam, Sullivan, and Ulster counties had the highest increase in revenues over the decade.

 

            Growth Rates of Revenues

 

Real property tax collection grew in inflation-adjusted terms over the decade, with an average increase of 1% for the region.  Across the various counties, there was a highly mixed pattern, however.  Again, Ulster, Sullivan,  Columbia, and Rockland counties increased dramatically, with declines in other counties, such as Dutchess and Orange counties.

Sales tax revenue grew by 45% in real terms over the decade.  The largest gains in sales tax collections were in Dutchess, Orange,  Rockland, Putnam, and Columbia counties, with declines only in Sullivan.

State aid increased by 12% in real terms, while federal aid increased by 10% for the region as a whole.  Interest earnings and all other revenues declined.

 

            Share of Total Revenues

 

The largest single source of local government revenue in the region is property taxes, comprising 24.8% of the total in 2000, down from 26.4% in 1989.  Ulster, Sullivan, Rockland, and Westchester increased their reliance on property taxes, while Dutchess, Putnam, Orange,  Columbia, and Greene reduced their reliance on this single source.  Dutchess and Westchester were more reliant on property taxes in 1989 than the regional average of 26.4%, but Westchester reliance increased by 11 over the decade, while Dutchess

The share of revenues from sales tax increased from 16.4% for the region to 22.2%.  The greatest increase in reliance in sales tax was in Dutchess, where the share nearly doubled, from 15.3% to 30.1% of the total revenue for the county, while Rockland increased by half.  These increases in sales tax as a share of total revenue put Dutchess and Rockland above the regional average in 2000 of 22.2%.  There were significant declines in reliance on sales tax in Sullivan, Ulster, Columbia, and Putnam.

Intergovernmental revenues was also a significant source of finance for counties in the region.  State aid increased from 17.4% of total revenues for the region in 1989 to 18.1% in 2000.  Federal aid increased also but was a smaller share, growing from 10.7% of the total to 10.9% in 2000.  The largest share of federal and state revenue was used for social services and health.

All other revenues was also an important share of the total, declining from 24.7% in 1989 to 18.9% in 2000.

 

            Expenditures by Function

 

Although there was a general shift in revenue sources, with an increased share from sales tax and a decrease in the share from property tax, these two sources together still comprised nearly half of revenues for county governments.  In 1989, both property and sales tax revenues together made up 42.8% of total revenues, increasing to 47% in 2000.  This increased significance of the two sources of revenue which are tied directly to the local economy may increase the importance of the economic assistance function on the expenditure side. This category of expenditure, which comprises the largest single expenditures by county governments, increased from 33.4% share of total expenditures in 1989 to 38.1% in 2000, and includes social services to individuals as well as economic development activities.

Other notable government functions include general government administration, which increased from 11.1% of total revenues in 1989 to 13.5% in 2000.  Increases in the share of total for administration were observed in Westchester and Columbia, while there were decreases in Rockland and Greene, in the share of total expenditures for this particular function. Another significant local government function was police, which grew from 8.8% of total revenues in 1989 to 11.3% in 2000.  The largest increases in police expenditures as a share of total were in Ulster and Westchester, while Sullivan had the only decrease.  Health declined as a share of total expenditures over the decade, from 26.1% in 1989 to 15.6% in 2000.  The largest decreases were in Ulster, Westchester, and Rockland, while the largest increases were in Sullivan, Putnam, and Columbia. 

Other functions comprised much smaller shares of the total budget, including education, other public safety, transportation, culture, utilities, and other community services. 

 

            Expenditures by Object

 

The majority of county expenditures is dispersed by contract, with an increase in the share of the total from 54.3% in 1989 to 55.9% in 2000.  That share increased for all counties except for Orange, Putnam, Rockland, and Columbia.  Direct employment of personnel constituted 23.7% of total expenditures in 2000, down from 26.2% in 1989.  Employee benefits added another 8% of total expenditures, with large gains in Orange county and large declines in Sullivan and Rockland.

Equipment outlay remained in the range of 6% to 8% over the decade, with Sullivan, Rockland, and Dutchess showing large gains and Columbia, Putnam, Greene, and Westchester showing large declines.  By nature, capital equipment outlay would be more variable than other types of expenditures. Debt service, including principal and interest, increased from 3.7% of total expenditure in 1989 to 5.8% in 2000. The largest increases were in Columbia, Putnam, and Westchester.   The  functions with the greatest capital expenditures were general government, transportation, and utilities.

 

Sources: New York Times, Wall Street Journal, CS First  Boston, Cleveland Federal Reserve Bank, U.S. Bureau of Economic Analysis, U.S. Census Bureau, U.S. Department of Labor, New York State Department of Labor, New York State Department of Taxation and Finance, New York State Association of Realtors, National Park Service, Stewart Airport, Westchester County Airport, New York State Comptroller.

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