Hudson Valley Review

Fourth Quarter 2004

Marist College

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

March 2005

This report and backup files are available on the Bureau of Economic Research homepage at http://www.marist.edu/management/bureau

The assistance of FRED LAURICELLA, NICHOLAS LOMBARDI, and CHARU VERMA is acknowledged and appreciated.


Now available as a downloadable PDF file.

Table of Contents

Fourth Quarter 2004

Special Focus:

EXHIBITS

Fourth Quarter 2004 Exhibits

U.S. Nonfarm Employees

Hudson Valley Employment

Home Sales in Hudson Valley Counties

Tourism

Stewart and Westchester Airports

Consumer Price Index

Transfer Payments

Annual 2004 Exhibits

Hudson Valley Employment

Home Sales in Hudson Valley Counties

Tourism

Sales Tax and Bankruptcies

Transfer Payments

Special Focus


Hudson Valley Review

Summary and Highlights

Fourth Quarter, 2004

  • Total jobs continued to increase in the Hudson Valley region, expanding through the 2001 recession, contrary to the national experience. The exact multi-year growth rates will be reported in the First Quarter, 2005, report, when revisions to the employment data by the New York State and the U.S. Department of Labor will be complete.
  • Jobs held by residents increased by more than 1% in the fourth quarter, 2004, compared with one year ago. Job growth exceeded labor force growth, reducing the regional unemployment rates to 3.9% for the region.
  • Prosperity remained differential, with cities like Newburgh experiencing more than double the unemployment rate for the respective county, 9.3% for the city compared with 4.3% for Orange county in fourth quarter, 2004.
  • Jobs located in the region grew by 1.6% in the fourth quarter, 2004, with manufacturing the only declining sector.
  • In the fourth quarter, 2004, the number of home sales and prices continued to increase. The number of homes sold increased by nearly 12%, faster than New York State and the U.S., with a mixed pattern across the region. The average selling price increased by more than 10%, with increases in every county. The average selling price for the region was $455,000, with a low of $163,000 in Greene county and a high of $782,000 in Westchester.
  • According to one indicator, the pace of home building is slowing. The number of single family home permits decreased slightly from one year ago, with a mixed pattern across the region. The monthly average cost per permit increased by roughly 18%, with increases in all counties.
  • Passenger traffic at Westchester and Stewart Airports increased, along with cargo at Stewart.
  • Sales tax collections increased by nearly 12%, with a slight decline only in Ulster county.
  • The number of visitors taking tours at the Roosevelt/Vanderbilt national historic sites declined from one year ago levels, while the visitors to the grounds remained roughly constant.
  • The number of bankruptcies remained roughly constant in the region.
  • Inflation in the New York/New Jersey Metropolitan Area remains higher than the U.S. city average.
  • The number of recipients and expenditures declined for temporary assistance to needy families. Expenditures and recipients for food stamps and supplemental security income increased for fourth quarter, compared with one year ago.

Annual, 2004

  • Inflation in the New York/New Jersey Metropolitan Area was 3.5% for the full year, 2004, while the average for all U.S. cities was 2.7%.
  • The number of homes sold increased by 14.2% for the year, and the average price of homes sold increased by 9.6%
  • The average number of residential construction permits increased for the full year, 2004.
  • Passenger traffic at Stewart Airport increased by roughly 40% for 2004, the first significant increase since 1997.
  • Regional sales tax collections increased by more than 12% for 2004, with increases in all counties.
  • The number of visitors taking tours declined for all the National Historic Sites in the region, including Roosevelt, Vanderbilt, and Van Buren. The number of visitors including both tours and visits to the grounds remained roughly constant at the Vanderbilt site since 2000.
  • Bankruptcies increased by 18% in 2004 in the Southern District of New York State, the largest increase since 2001.

Special Focus

The new industry classification code, North American Industry Classification, or NAICS, provides a more in-depth analysis of the service sector, and long-term changes in industry composition. In the region as a whole, trade, transportation, and utilities is the largest employment sector, followed by government, and education and health services, a consistent pattern since 1991.

In the Hudson Valley region, there are several distinct patterns by county. For some counties, government is the largest sector as share of total employment. For commercial centers, trade, transportation, and utilities is largest. For others, education and health is the largest sector, similar to New York City and New York State. For those counties with government as the largest sector, the issues related to taxation and government deficits loom large. For commercial centers, trade, transportation, and utilities is the largest employer, but often depends on income generated outside the county. The education and health services sector is also influenced by government and non-profit support, but can also be a source of export earnings and high wages. The historically export and high wage sector, manufacturing, is in decline through the region, the state, and the nation.

More specifically, for the smaller counties, government is the largest sector, including Columbia, Greene, Putnam, Sullivan, and Ulster. For the largest counties, including Orange county (Newburgh), Rockland, and Westchester, trade, transportation, and utilities is the largest sector. In Dutchess county, education and health services is the largest sector, like New York City and New York State. For New York State, manufacturing has declined from 11.5% to 7% from 1991 to 2004. At 13.4%, Dutchess has the largest share of manufacturing in the region, followed by Rockland and Columbia.

For the region as a whole, the highest paying sectors are utilities ($73,226) and management of companies ($68,656), and state government ($52,304). There is also a differential pattern with respect to average wages by sector. In Columbia, Greene, and Sullivan counties, the state government average annual wages are the highest, while in Dutchess county, manufacturing and utilities are the highest paying sectors. In Orange, Putnam, Rockland, and Westchester counties, management of companies and utilities are the highest paying sectors. In Ulster county, utilities is the highest paying sector.

Prospects

The Hudson Valley region has shown resilience during the stock market bubble burst of 2000 and the 2001 recession. Its diverse economy, by region and by county, has facilitated adjustment. Factors such as the housing and residential construction sector and immigration have boosted growth. Nonetheless, as interest rates rise, and global competition accelerates in key sectors like electronics, prospects for job growth may remain sluggish. The federal government and the international trade deficits threaten to continue the decline of the dollar, which may ultimately weaken the global influence of the New York City and Hudson Valley financial sectors.

National Review

The gross domestic product increased by 3.8% in the fourth quarter of 2004. Consumption increased by 4.2% and gross private domestic investment increased by 13.4%. Expenditures on equipment and software increased by 18%, the highest rate of growth since third quarter, 2003, with double digit increases for three consecutive quarters. The increase in residential investment was 2.1%, a slowdown from the rapid growth of 16.5% in the second quarter but faster than the tepid 1.6% of the third quarter. Exports grew by 2.4% but were swamped by the growth in imports of 11.4%. The price deflator for GDP grew by 2.1%, still moderate by historic standards.

Productivity rose by 2.8% in the fourth quarter in the nonfarm business sector, compared with the previous year, the slowest rate since first quarter, 2003. In the manufacturing sector, productivity rose by 5.2% in the fourth quarter, the slowest rate since first quarter, 2004.

In the fourth quarter, the U.S. deficit on goods and services increased to $171,051 billion. The goods deficit of $183,542 billion was offset by a small surplus in services of $12,491 billion. The balance on income was a surplus of $2,136 billion, representing the net gain from U.S. investments abroad minus the earnings of foreigners on assets in the U.S. The continuing large U.S. trade deficits have contributed to the decline in the U.S. dollar, which depreciated by 5% against a group of seven major currencies in the fourth quarter, contributing more than half of the loss in value of 8% for the full year of 2004.

Full Year, 2004

Growth rate for the full year of 2004 was 4.4%, faster than 3.0% in 2003 and 1.9% in 2002, reinforcing the notion that the recovery has taken place from the 2001 recession. The growth in consumption was 3.8% and investment expanded by 13.2%, both increasing faster in 2004 than the previous two years.

The price deflator for 2004 grew by 2.1%, also faster than the previous two years. The price index for gross domestic purchases, which includes imports, rose more rapidly, by 2.4% for 2004.

Productivity rose by 4% for the year 2004 in the nonfarm business sector, compared with 4.4% for 2003. For the manufacturing sector, productivity rose by 5.2% for the year, the same as 2003, and slower than the 7.5% pace in 2002. Unit labor costs decreased for every quarter in 2004, since manufacturing compensation rose more slowly than productivity.

The Employment Cost Index for all civilian workers increased by 3.7% for the year ending in December, 2004, down slightly from 3.8% in 2003. This increase in total compensation costs is comprised of a slowdown in wage and salary growth to 2.4% for the year, and an increase in benefit costs of 6.9% for the year. The growth in wages and salaries is the slowest in recent decades, and the increase in benefit costs is approaching levels not seen since the early 1980s.

International Operations

For the full year, 2004, the trade deficit increased from $547,552 billion in 2003 to $665,477 billion in 2004. The surplus on services was smaller than 2003, declining from $51,044 billion to $48,402 billion, and the surplus on income was smaller than 2003, declining from $33,279 billion in 2003 to $24,063 billion in 2004. The value of the U.S. dollar declined 8% in 2004 against a group of seven major currencies.

Employment and investment trends for multinational corporations are reported by the Bureau of Economic Analysis for 2002, the last year for which data is available. While most of the employment of U.S. based multinational corporations is located in the U.S., the growth of this home-based employment is declining, while the employment by U.S. multinational corporations located abroad is increasing, since 2000. For example, U.S. multinational corporations employed 32 million workers world wide in 2000, of which 8.171 million were located overseas. That U.S. employment level has declined to 30.6 million in 2002, and the employment located abroad has increased to 8.233 million.

Table 2. U.S.-Parent Share of Selected Measures of the Operations of Nonbank U.S. Multinational Companies (BEA 04-16)

Year Employment Capital Expenditures
1988 78.8 79.2
1989 78.6 77.5
1990 77.5 77.6
1991 76.9 76.6
1992 76.8 76.8
1993 77.1 76.4
1994 76.5 76.4
1995 75.8 76.6
1996 75.6 76.4
1997 75.4 77.7
1998 74.5 77.1
1999 74.8 76.5
2000 74.5 78.2
2001/1/ 73.7 79.2
2002/2/ 73.1 75.0
  1. These estimates update those published in the November 2003 and March 2004 issues of the Survey of Current Business. Revised estimates based on more complete source data are scheduled to be released later this year.
  2. Advance estimates. Preliminary estimates based on more complete source data are scheduled to be released later this year.

As shown in Table 2 above, from the Survey of Current Business, this trend of a rising share of employment by U.S. multinational located overseas has been observed since 1988. In that year, 78.8% of U.S. multinational employment was located in the U.S., a share which has declined to 73.1% of total employment located in the U.S. in 2002. The same trend can be observed for capital expenditures, of which an increasing share is located overseas.

Updated estimates available from the Survey of Current Business, from January, 2005, reinforce the conclusion that U.S. multinational corporations locate more jobs overseas than foreign multinationals locate in the U.S. In 2002, U.S. nonbank foreign affiliates employed 9.7 million employees overseas, while nonbank U.S. affiliates of foreign companies only employed 5.9 million employees in the U.S. Further, both U.S. affiliates located abroad and foreign affiliates located in the U.S. import into the U.S. more than they export from the U.S. This pattern of trade by multinationals among countries contributes to the U.S. trade deficit, as a result. That is, there is both a job deficit as well as a trade deficit from the operation of multinational corporations.

Domestic Debt

While the trade deficit has been reaching record levels, the U.S. federal budget deficit has also been reaching record levels, whereby government expenditures exceed tax revenues collected.

Foreigners have been significant purchasers of U.S. Treasury securities in recent years, to help finance these federal deficits. Foreign purchases of federal debt outstanding have increased from 30.4% in 2000 to 42.8% in fourth quarter, 2004, according to the Flow of Funds Report by the Federal Reserve Bank. On a quarterly basis, foreign purchases reached a peak in the first quarter, 2004, and have declined by one third by fourth quarter, 2004. As the dollar weakens due to the trade deficits, the prospect of holding dollar-denominated debt may be less attractive to foreigners. In the last few weeks, talk of diversifying reserve holdings by central banks of Korea and Hong Kong has roiled global financial markets, and contributed to further dollar weakening temporarily.

The low interest rate environment has also encouraged consumers to take on extra debt. Household debt as a percent of total domestic nonfinancial debt reached a record 42.4% in 2004, according to the Flow of Funds report.

On March 22, 2005, the Federal Reserve increased the target federal funds rates to 2.75%, the seventh measured increase from the 1% level of June, 2004. This anticipated rise in interest rates, along with announcements from Asian central banks regarding an orderly diversification of holdings of other currencies as reserves besides the dollar, tended to stabilize the dollar.

After briefly nearing record stock prices set in March, 2000, the Dow Jones then declined to erase most of the recent gains, below 10,500, due to inflation fears and increasing oil prices to $57 per barrel.

Hudson Valley Review

Fourth Quarter, 2004

Employment Trends

The employment data included in the tables below does not include 2004 revisions in its year over year comparisons. The revised data will be reported in first quarter, 2005, at which time the revisions will be available for 2004, as well as for previous years. At this later time, year-to- year comparisons will be more meaningful and reliable, once revised data is consistently available for several years.

Place of Residence

Employment for residents in the Hudson Valley increased by 1.14% in the fourth quarter compared with one year ago. The most rapid growth rates were in Sullivan and Putnam, and the only decline was in Columbia county. Employment growth in New York City and New York State was more rapid, while the region was in line with the slower national growth rate. The labor force grew more slowly than the number of jobs, so that the regional unemployment rate declined, along with New York City, New York State, and the U.S.

The regional unemployment rate for the fourth quarter was 3.88%, and only Sullivan county exceeded 5% unemployment rate. By contrast, New York City, New York State, and the U.S. unemployment rates all exceeded 5%. The region still has pockets of high unemployment rates. For example, the unemployment rate in the City of Newburgh is 9.3%, more than double the rate for Orange county.

The hourly earnings in New York City and New York State are increasing more rapidly than the U.S. Data for regional wages is no longer available.

Place of Work

Jobs located in the region increased by 1.6% in the fourth quarter, 2004. The largest gains were in finance, leisure and hospitality, and professional and business services. Growth was observed in all counties, with the most rapid growth in Sullivan and Putnam, and the slowest in Westchester. Growth rates in New York City and New York State were both less than 1%.

Home Sales and Prices

Home sales continued to grow in the region, increasing by 11.8% over one year ago, faster than New York State and the U.S.. The pattern was uneven across counties, with large gains in Rockland, Dutchess, and Ulster, and declines in Columbia, Greene, and Sullivan. Average selling price increased by over 10% from one year ago. The highest level was $782,381 in Westchester County, and the lowest was $163,442 in Greene. The median selling price increased in all counties.

The number of building permits for single family homes declined by 1.5% in the fourth quarter, 2004, from one year ago, for the region as a whole. There were wide variations across the region, with large increases in Columbia, Greene, and Ulster, and declines in Putnam, Dutchess, and Rockland. The number of permits for all residential construction increased slightly, by .4%. The monthly average cost per permit increased by over 15% for both single family homes and all residential construction.

Air Travel

Passenger traffic at Westchester County Airport has increased by more than 10% from one year ago. At Stewart Airport, passenger traffic increased substantially, by more than 40% compared with one year ago. Cargo also increased by roughly 10% during the same period.

Sales Tax Collections

One indicator of retail sales is sales tax collections. For the region as a whole, total sales tax collections have increased by more than 10% from one year ago. There were increases in all counties except a slight decline in Ulster. The largest gains were in Orange, Westchester, and Rockland.

Tourism

For fourth quarter, 2004, the number of visitors taking tours at the Roosevelt-Vanderbilt National Historic Sites decreased by more than 10% from one year ago. The number of visitors taking tours and visiting the grounds were roughly constant.

The number of visitors to the Martin Van Buren National Historic Site were up slightly from one year ago.

Bankruptcies

Business bankruptcy filings decreased from fourth quarter one year ago for both the southern and northern districts (both of which include counties in the Hudson Valley). Nonbusiness filings increased for the northern district by 1.5%, compared with declines for the state as a whole.

Inflation

Since 2002, the rate of inflation in the New York/New Jersey Metropolitan Area has been higher than the average for all U.S. cities. Given the high unemployment rate in New York City during this period, this inflation trend may reflect increasing costs, rather than demand pressure. The rate for New York/New Jersey was 3.53% for the full year of 2004, compared with 2.68% for all U.S. cities. The New York/New Jersey metropolitan area rate of inflation in 2004 was more rapid than the 2003 rate of 3.07%, which was also higher than the average for all U.S. cities in 2003, at 2.3%.

Transfer Payments

The number of recipients for assistance for needy families declined for the region in fourth quarter, 2004, compared with one year ago. Nonetheless, there were some counties where the number of recipients increased, including Dutchess, Greene, Putnam, and Sullivan counties. Total expenditures declined for the region as a whole, although there were increases in safety net expenditures.

The number of recipients and expenditures for food stamps and supplemental security income increased from one year ago for the region.

Annual, 2004

Employment

Annual trends in employment will be reported in the Hudson Valley Review of the first quarter, 2005, when revisions for several years are available.

Home Sales and Prices

Twenty thousand homes sold in the Hudson Valley in 2004, one fifth of the state total. The number of homes sold increased by 14.2% for the region in the full year 2004, faster than New York State and the U.S. The largest gains were in Dutchess and Orange, and the only decline was in Putnam. This one year increase for the region was significantly larger than the state and the nation, although the four-year regional pace since 2000 has been slower than these comparison areas.

The increase in the average price of homes sold has moderated to 9.6% for the region, from the 12.6% pace in 2003. The four-year regional increase of 53.4%, from 2000 . 2004, is in line with the rate for New York State as a whole, and faster than the U.S. increase of 33.4% over that same period.

Building Permits

Building permits increased for single family homes and all residential construction.

Air Traffic

Passenger traffic at Stewart Airport increased by roughly 40% for the full year, 2004. After a very small gain in 2003, this substantial growth in 2004 is the first significant turn-around since 1997.

Sales Tax Collections

Sales tax collections increased by 12.4% for the region, with gains in all counties.

Tourism

Visitors taking tours declined in 2004 for the region's historic sites, while visits to the grounds remained roughly constant for the Vanderbilt estate.

Bankruptcies

Bankruptcies for the Southern district increased by 18% in 2004, the largest increase since 2001. The Northern district remained roughly constant.

Special Focus
Employment Composition

Data for the new industry classification system, North American Industry Classification System, or NAICS, is now available for a consistent trend from 1990 to 2004. New insight can be gained into the regional employment composition and changing employment structure, using these new definitions.

For the region as a whole, trade, transportation, and utilities is the largest employment sector, followed by government, each with roughly 20% of total employment. The third largest sector is health and education, increasing from 15% to 18%, followed by professional and business services, and manufacturing. While the two largest sectors have been a relatively stable share of total employment, manufacturing has been declining since 1990, from 12% to 7%. During this same period, two service sectors, health and education, and professional and business services, have been increasing, from 15% to 18%, and from 9.5% to 10.3%, respectively.

There are several distinct patterns. For the smaller counties, government is the largest sector, including Columbia, Greene, Putnam, Sullivan, and Ulster. For the largest counties, including Orange county (Newburgh), Rockland, and Westchester, trade, transportation, and utilities is the largest sector. In Dutchess county, education and health services is the largest sector. In New York City and New York State, education and health services are the largest sector. For New York State, manufacturing has declined from 11.5% to 7% from 1991 to 2004. At 13.4%, Dutchess has the largest share of manufacturing in the region, followed by Rockland and Columbia.

The pattern of employment composition varies considerably by county. In Columbia county, the largest sector is government, followed by education and health services, and trade, transportation, and utilities. Leisure and hospitality is also the same share of total employment as professional and business services, 7.1%, at least since 2003.

For Dutchess county, manufacturing has a higher share of employment than the region as a whole, although declining from 25% in 1991 to 13.4% in 2004. Education and health services have a larger share of total employment than trade, transportation, and utilities since 1995. Professional and business services have become a larger share of employment than leisure and hospitality since 2002.

In Greene county, government is the largest sector, followed by trade, transportation, and utilities, and leisure and hospitality. Trade, transportation, and utilities have become a larger share of employment than leisure and hospitality only since 1995.

In Putnam county, government is the largest sector, followed by education and health services, and trade, transportation, and utilities. In Putnam county, the sector of natural resources, mining, and construction employs a larger share of the total employment than manufacturing since 1998, while in Sullivan county, these two sectors a similar share of total employment.

In Sullivan county, government is the largest sector, followed by education and health services, and trade, transportation, and utilities. Employment in leisure and hospitality has been declining from 20% to 14% since 1991, so that education and health services and trade, transportation, and utilities are now larger.

In Ulster county, professional and business services has declined from 16% to 6.6%, so that education and health services, and leisure and hospitality now represent a larger share of total employment. Government is the largest sector, followed by trade, transportation and utilities, and education and health services.

In Westchester county, natural resources, mining, and construction has comprised a larger share of total employment than manufacturing, since 2000. Trade, transportation, and utilities is the largest sector, followed by education and health services, government, and professional and business services.

Regarding average annual wages per sector, there are some interesting contrasts across the counties. In Columbia, Greene, and Sullivan counties, the state government average annual wages are the highest, while in Dutchess county, manufacturing and utilities are the highest paying sectors. In Orange, Putnam, Rockland, and Westchester counties, management of companies and utilities are the highest paying sectors. In Ulster county, utilities is the highest paying sector.

Sources:
New York Times, Wall Street Journal, Business Week, U.S. Treasury, Federal Reserve Bank, U.S. Department of Commerce, U.S. Department of Labor, National Park Service, New York State Department of Labor, New York State Department of Taxation and Finance, New York State Association of Realtors, Stewart Airport, Westchester County Airport.

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