Hudson Valley Review

First Quarter 2004

Marist College

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

June 2004

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

First Quarter 2004

Summary and Highlights
National Review
Hudson Valley Review

Special Focus: Affordable Housing

EXHIBITS

First Quarter 2004

U.S. Nonfarm Employees

Hudson Valley Employment

Home Sales in Hudson Valley Counties

Stewart and Westchester Airports

Tourism

Consumer Price Index

Special Focus: Affordable Housing


Summary and Highlights
First Quarter 2004

  • Jobs held by residents of the region increased by less than one percent. The labor force expanded by 1.34%, so that the increase in the number of individuals looking for work exceeded the number of new jobs. Consequently, the unemployment rate increased throughout the region, to an average of 5%, the highest since 1996.
  • The unemployment rates of the cities of Newburgh and Poughkeepsie increased relative to the county averages, from the same quarter one year ago.
  • The number of jobs located in the region increased by 1.3%, with continued decreases in manufacturing and a large quarterly decrease in the information sector, primarily in Ulster county.
  • Air traffic and air cargo were up strongly from the same quarter one year ago.
  • Tourism increased at the Roosevelt-Vanderbilt site, a facility operated by the National Park Service in Dutchess County.
  • Home sales increased by 12% compared with one year ago, but the longer term trend is steady. The average price of homes sold increased by nearly 11%. The only decline in average or median sales price was in Greene county, compared with one year ago.
  • The average number of building permits increased strongly for the region.
  • Inflation for the New York City metropolitan area is nearly 3%, a strong increase compared with the national average for all cities of 1.8%.
  • Temporary Assistance recipients and payments has increased for the region as a whole, as well as food stamp payments and recipients.

Special Focus

Home Affordability

The home affordability issue is influenced by many factors. One aspect, the share of multi-family homes, has increased in the last decade, from 41% to 49% in the region. Second, homeowners have increased equity from the increasing home prices, which affects approximately 60% of the households in the region. Low interest rates and refinancing may have helped to stimulate the region economy, as well as the national economy, in the last two years, with record low interest rates. Vintage distribution is also a factor. While the regional share of new homes, constructed in the last decade, is more than New York City and New York State, the national share of 17% is nearly twice as high as the regional share of 8.7%.

The frequency of moving also affects affordability. For homeowners, 45% have moved in the last decade, while the number is much higher for renters, 80% for the region and 87% for the nation. While home owners who move have usually increasing equity in their existing homes, renters, who constitute 33% of the households in 2000, are much more vulnerable to the increasing escalation of home sale prices. Also, newer homes in select neighborhoods tend to have more price escalation than older homes.

From the 2000 census, 32% of the renters in the region pay more than half of their income for housing costs, while only 25.8% of the homeowners are in this situation. Both of these indicators of affordability exceed the national averages. By contrast, only 30% of the renters and 16% of the homeowners in the nation have housing costs which exceed half of their household income.

As a measure of home affordability, the Bureau of Economic Research has calculated the income level needed to purchase a home with the median price in each county as of first quarter, 2004. Only in Sullivan and Greene counties was the median county income more than the income needed to purchase the median priced home, at current mortgage rates and other costs of home ownership. The least affordable counties were Westchester, Rockland, and Dutchess, where the median county income was one third to two thirds of the income necessary to purchase the median priced home.

Economic Industry Structure

Another impact of increasing housing prices is the effect on other industries. With the redefinition of the manufacturing sector under the NAICS code, and the continual decline in the region, the state, and the nation, the real estate/construction sector is now larger than manufacturing, in terms of the numbers of jobs created. For the first quarter, 2004, the total employment in manufacturing was 66,400, compared with 95,967 for the combined total of finance, real estate, and construction. Given the rising price of homes and for land, the cost pressures on other industries in the region becomes greater, and the potential gain from converting to real estate becomes more alluring. The "bedroom community" complex becomes more difficult to resist, and the diverse economy more difficult to protect. Concerted efforts in this direction, to protect open space and natural resources, and to sustain the diverse regional economy, are more urgent in this context.

Prospects

As the regional economy becomes more dependent on real estate and construction, the potential negative effect of rising interest rates becomes larger. That factor, along with the rising costs of petroleum, will also impact a commuter-based region, such as the New York/New Jersey Metropolitan Area. The rising costs of health care have a dual impact, in turn; first health benefits increase the cost of doing business, but on the other hand, the health industry creates an important share of jobs in the regional economy. Further, the rising federal budget deficit, and shrinking state revenues, will have an impact on jobs in the government sectors. The manufacturing sector in the region has begun to contract, as well, no longer countering state and national trends, which are affected by the lower costs and growing markets in global locations.

For these reasons, the forecast is for continued moderate job growth in the region, of less than one percent.


National Review - First Quarter 2004

Gross Domestic Product increased by 4.4% in the first quarter of 2004, an increase from 4.1% in the fourth quarter, 2003, but down from the torrid pace of 8.2% in third quarter of 2003. Personal consumption increased by 3.9%, but there was a surprising decrease in durable goods of 4.2%, especially given the continued low interest rates. This first quarter decrease in purchases of consumer durables was the first decline since second quarter, 2000.

Gross private investment increased by 10.1% in the first quarter, a slower growth rate than fourth quarter, when gross investment increased by nearly 15%. In a similar pattern, there was a third consecutive quarterly decline in the growth rate of nonresidential investment, and the third quarterly decline in investment in nonresidential structures. Purchases of equipment and software increased by 9.8%, but also represented the third consecutive quarter of declining rates of growth. Residential investment increased by 3.8% in the first quarter, down from the third quarter pace of nearly 22% and the fourth quarter increase of nearly 8%.

Government spending increased by 2.9% in the first quarter, 2004, with a 13.2% increase in defense spending, while state and local spending declined by .7%.

The implicit price deflator of Gross Domestic Purchases, one of the broadest indicators of inflation, increased by 2.6% in the first quarter, up from 1.5% in the fourth quarter, and the highest quarterly increase since second quarter, 2001. The implicit price deflator for Gross Domestic Purchases, which includes imports, increased by 3.3%, the most rapid rise since first quarter, 2003.

Productivity in the business sector increased by 5.6% in the first quarter, 2004, compared with one year ago, the fastest rate since before the 2000 recession, with similar patterns in the nonfarm business sector. Unit labor costs decreased by nearly 1%, because productivity grew faster than labor compensation per hour. In a surprising reversal, productivity growth in the manufacturing sector was slower, with a first quarter rate of 5.2% compared with one year ago, slower than the rate of fourth quarter, 2003. Productivity gains help increase output at lower prices, but in turn slow the rate of job growth.

The employment cost index shows a stable rate of increase in overall compensation of 3.8% for the year ending March, 2004. This pace is down slightly from 3.9% for the previous two years, and down from 4.1% in March of 2001. The components of total compensation are diverging, nonetheless. Wage and salaries are increasing more slowly, at 2.5% in the year ending March, 2004, down from 2.9% for the previous year, with consecutive declines from the 4% pace in March, 2000. At the same time, benefit costs continue to accelerate. Benefit costs for all civilian workers is increasing at the rate of 6.9% for the year ending March, 2004, and by 7% for workers in private industry, the highest pace since 1990.

The stock market has yet to return to pre-recession peak, and the target federal funds rate remains at the record low 1%, even as the Federal Reserve has begun to issue formal warnings about their intention to raise rates in the near future.

The trade deficit for the first quarter, 2004, was $131.5 billion, up from $121.5 billion in first quarter, 2003, and $90 billion in the first quarter of 2002. The surplus of $15.7 billion in services was offset by the deficit of $147.2 in goods. Petroleum imports constituted 23.35% of the deficit in first quarter, 2004, up from 22.4% in the first quarter of 2003. The largest relative deficits in goods were in consumer goods and automotive vehicles and parts, and smaller in capital goods. The deficit in advanced technology products was $4 billion in the first quarter of 2004, up from $3.8 billion in first quarter, 2003, and $1.8 billion in 2002. New York is the fifth largest state in manufactured exports, with 4.3% of U.S. total manufactured exports in March, 2004. The largest U.S. trade deficit was with China in the first quarter, followed by Japan, Canada, Mexico, and Germany, with a similar pattern for the full year of 2003.

The latest data from the Bureau of Economic Analysis (BEA) in the Department of Commerce shows a declining share of total employment of U.S. multinationals, which is located in the U.S. proper. U.S. based multinational corporations employed a total 30.6 million workers throughout the world in 2002, the last year for which data is available, of which 22.4 million were employed in the U.S. That is, 73% of the total employment by U.S. multinational was employed in the United States, in 2002. This U.S.-based employment by global U.S. companies represents approximately 20% of the total number of private sector jobs in the U.S.

Table 1. Employment, Capital Expenditures, and Sales by Nonbank U.S. Multinational Companies, 1988-2002

  Thousands of employees
  U.S. Multinational Companies U.S. Parents Majority- Owned Foreign Affiliates
1988 22,498.10 17,737.60 4,760.50
1989 23,879.40 18,765.40 5,114.00
1990 23,785.70 18,429.70 5,356.00
1991 23,345.40 17,958.90 5,386.50
1992 22,812.00 17,529.60 5,282.40
1993 22,760.20 17,536.90 5,223.30
1994 24,272.50 18,565.40 5,707.10
1995 24,499.70 18,576.20 5,923.50
1996 24,867.00 18,790.00 6,077.00
1997 26,358.00 19,878.00 6,480.00
1998 26,592.90 19,819.80 6,773.10
1999/3/ 30,772.60 23,006.80 7,765.80
2000 32,056.60 23,885.20 8,171.40
2001/4/ 31,087.90 22,907.00 8,180.90
2002/5/ 30,633.90 22,400.30 8,233.60
  Percent change at Annual rates:
1988-1999 2.9 2.4 4.5
1999-2000 4.2 3.8 5.2
2000-2001 -3.0 -4.1 0.1
2001-2002 -1.5 -2.2 0.6

1. Total expenditures for property, plant, and equipment.
2. An MNC-wide total for sales is not provided because transactions among and within MNCs would be duplicated.
3. Break-in-series. (See the technical note on page 121 of the December 2002 issue of the Survey of Current Business for details.)
4. These estimates update those published in the November 2003 and March 2004 issues of the Survey of Current Business.

As shown in Table 1. above from the BEA, both the total world wide employment of U.S. multinationals, as well as the share located in the U.S., reached a peak in 2000, and have been declining since then, although the U.S. share has been declining faster.

As a result of the more rapid declines of jobs located in the U.S., the share of total worldwide employment of U.S. multinationals which is located in the U.S. has been declining, continuously since 1988, as shown in Table 2 below. In 1988, nearly 80% of the total employment of U.S. multinationals was located in the U.S., a share which has declined steadily to the current share of 73%.

Table 2. U.S.-Parent Share of Selected Measures of the Operations Of Nonbank U.S. Multinational Companies [Percent]

  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

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.

The employment based in the U.S. by foreign multinational corporations has also been declining, from a total of 5.7 million workers in 2000 to 5.5 million in 2002.

To summarize, for the year 2002, U.S. multinationals employed 8.2 million workers overseas, while foreign multinationals located 5.5 million jobs in the U.S. This information helps to provide an authoritative source of data for the current debate on "outsourcing," and shows a net outflow of jobs from the U.S. from the operation of multinational corporations. The Bureau of Economic Analysis will be trying to provide more current information in the future.


Hudson Valley Review

Employment and Earnings

Place of Residence

Jobs held by residents increased by less than one percent in the first quarter, 2004. The regional average of .68% employment growth masked divergent patterns across the region, with strong gains of over 4% in Putnam and nearly 2% in Rockland, with losses in Columbia, Greene, and Ulster. New York City and New York State also had declines in employment.

In all counties in the region, the jobs grew more slowly than the labor force, or declined faster, so that the unemployment rates increased in all counties in the region. The regional average unemployment rate exceeded 5%, with some counties exceeding 6%, such as Greene and Sullivan. The unemployment rate in New York City exceeded 9% and both New York State and the U.S. exceeded 7%.

The unemployment rates in particular cities, such as Poughkeepsie and Newburgh, worsened relative to the county rates.

Place of Work

The jobs actually located in the region increased for the first quarter, 2004, by 1.3%. There were significant declines in certain sectors, nonetheless, with significant job losses in manufacturing and the information sector. The largest gains were in finance, education and health services, business and professional services, as well as leisure and hospitality. The strongest gains were in Putnam and Rockland County, with losses in Greene.

Regional Airports

There were nearly 30% increases in passenger traffic at Stewart Airport, from the same quarter one year ago, with dramatic increases in cargo as well. The addition of new carriers at Stewart has helped improve these activity levels, which nonetheless remain below previous peaks. There were declines of roughly 10% at the Westchester county airport.

Tourism

Visitors taking tours at the Roosevelt-Vanderbilt Historic Sites increased by 5% from one year ago. Total visits, including use of the grounds, increased by 16% overall.

Home Sales

The number of homes sold in the first quarter, 2004, increased by 12.4% compared with one year ago. The largest gains were in Dutchess, Ulster, and Sullivan, with losses in Columbia and Greene. Comparing first quarter 2004, with two years ago, first quarter, 2002, the total number of sales this year has declined, so that the long term trend is not necessarily increasing. The average and median sales price of homes sold in the quarter continued to increase, nonetheless, with declines only in Greene county. Such a decline could be due to a change in the composition of homes sold, as much as caused by any decline in price for any specific house.

The average number of construction permits for single family homes has increased by over 30% for the region, with significant gains in most counties, except for Putnam. When the total number is small, in a particular county, percent changes can vary from month to month.

Consumer Price Index

The rate of inflation for the region, as indicated by the Consumer Price Index, was 2.8% for the New York/New Jersey Metropolitan Area, compared with 1.8% for all U.S. cities. In both areas, the rate of inflation is still below the first quarter one year ago, but with an increasing trend.

Transfer Programs

For the region as a whole, the number of recipients and the expenditures for Temporary Assistance for Needed Families increased for the fourth quarter, 2003, the last period for which information is available. The largest increases in recipients were in Westchester, Sullivan, and Columbia, with decreases in Orange, Rockland, Columbia, and Ulster. Expenditures for the safety net provision, a New York State income supplement, increased by nearly 10% for the region.

The number of recipients and expenditures for Food Stamps also increased in the fourth quarter, 2003, compared with one year ago. The pattern for Supplemental Security Income was more mixed, with smaller regional increases, overall.


Special Focus

Affordable Housing

Two recent reports have highlighted the issue of affordable housing in the region, from the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO) in September, 2003, as well as the Regional Plan Association (RPA) of New York City, April, 2004 (http://www.rpa.org).

New York/New Jersey Metropolitan Area

From the perspective of the tri-state metropolitan region, RPA compares the New York/New Jersey Metropolitan area to other similar areas throughout the country. Some useful comparisons from that report are as follows:

  • The average commute time to Manhattan is 48 minutes, and the average regional commute is 33 minutes, longer than other metropolitan regions.
  • The median structure age is 1971 in the U.S. and 1946 in New York City.
  • The increase in median home sales price for single family houses between 2000 and 2002 exceeded 30% for three counties in the New York/New Jersey Metropolitan area, Suffolk County, Long Island, Monmouth County, New Jersey, and Dutchess County, New York. The pressure on home prices is a factor throughout the region, as these rapid rates of increase in counties located along different radials from New York City indicate.

Statistical studies conducted at the Marist College Bureau of Economic Research confirm that distance from New York City is a significant factor in the explanation of home prices throughout the region.

Map - Urban/Suburban Rings
Source: Regional Plan Association

As shown in Map 3 below (from RPA) the impact of growth in the last decade has been uneven across the region.

Map - Median Household Income Change 1990 to 2000
Source: Regional Plan Association

Hudson Valley Trends

Some issues of affordability are related to the composition of the housing stock. For example, the Hudson Valley has a smaller share of total housing which is multi-family, although that share has increased from 1990 to 2000, from 41% to 44.8% of the total. In the year 2000, New York State had 63% share of multi-family housing, and New York City had 93%, while the U.S. had 35%. The more urbanized counties in the region have a larger share of multi-family housing, with Rockland and Westchester shares of 42% and 61% respectively. By contrast, Columbia, Greene, and Putnam counties have less than 25% multi-family housing, in 2000.

The Hudson Valley also had a larger share of homeownership than either New York City or New York State. In this region, 60.5% of the households own their own homes, compared with 29% in New York City and 49% in New York State, and 60.2% in the U.S.

The vintage of the housing stock is also a factor in affordability. Frequently, housing for the poor is provided by "filtering" of the older housing stock, while the more affluent purchase new homes. In New York City, over half of the housing stock was constructed before 1950, with only 4% in new construction in the decade of 1990 . 2000. The share of housing constructed between 1950 to 1970 was almost one third, for New York City, New York State, and the Hudson Valley, as the post war period was one of rapid growth in the entire region. In contrast, 8.7% of the total housing stock was constructed after 1990 in the Hudson Valley region, more than double the share of New York City. The national pattern shows a more even distribution of home construction by vintage, with 17% of the total stock constructed in the most recent decade.

The rapid rate of home price increase forms a particular hardship for first time homebuyers. Unable to afford a home purchase, these households then drive up rents as well. On the other hand, the existing homeowners, who represent more than half of the households in the region, have experienced a rapid increase in equity, which may serve to stimulate consumption and the purchase of yet more capacious homes. Another option is the sale of an existing "starter home" and then moving north to more affordable homes further from New York City, providing another meaning to the term "moving up" in the regional lexicon. With record low interest rates in the last few years, homeowners have been able to translate home equity into increases in asset values, and have also had the option of mortgage refinancing to increase disposable income.

Another aspect of affordability is the frequency of moving. Renters move much more frequently than homeowners, and so are more likely to be affected by escalation in rents. In the region, 80% of the rental residents had moved in the last ten years, compared with two thirds in New York City and 73% in New York State, and 87% in the nation. For home owners, only 45% of the residents had moved in the last ten years, with the same fraction or less for New York City and New York State, and 53% for the national average.

From the 2000 census, 32% of the renters in the region pay more than half of their income for housing costs, while only 25.8% of the homeowners are in this situation. Both of these indicators of affordability exceed the national averages. By contrast, only 30% of the renters and 16% of the homeowners in the nation have housing costs which exceed half of their household income.

As a measure of home affordability, the Bureau of Economic Research has calculated the income level needed to purchase a home with the median price in each county as of first quarter, 2004. Only in Sullivan and Greene counties was the median county income more than the income needed to purchase the median priced home, at current mortgage rates and other costs of home ownership. The least affordable counties were Westchester, Rockland, and Dutchess, where the median county income was one third to two thirds of the income necessary to purchase the median priced home.

With estimates like this, however, one must keep in mind that many home purchasers are also selling existing homes, and so may benefit from as well as pay for the escalation in home prices. The renter and the first time buyer are the most vulnerable to home price escalation.

Sources: The New York Times, The Wall Street Journal, Business Week, U.S. Department of Commerce, U.S. Department of Labor, U.S. Census, New York State Department of Labor, National Park Service, New York State Association of Realtors, Stewart Airport, Westchester County Airport, Regional Plan Association.

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