Hudson Valley Review

Second Quarter 2003

Marist College

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

August 2003

The assistance of Kevin Edson, Shivan Durbal, and Chris Trocino is acknowledged and appreciated.

Now available as a downloadable PDF file.

Table of Contents

Second Quarter 2003

Summary and Highlights
National Review
Hudson Valley Review

Second Quarter 2003 Exhibits

U.S. Nonfarm Employees

Hudson Valley Employment

Home Sales in Hudson Valley Counties

Stewart and Westchester Airports


Consumer Price Index

Special Focus - Hudson Valley Manufacturing

County Employment Composition by Sector

Average Annual Earnings Per Worker

Per Worker by Sector

Productivity Indicators

Summary and Highlights
Hudson Valley Review - Second Quarter 2003

  • Contrary to trends elsewhere in the U.S., Hudson Valley jobs continued to expand in the second quarter, 2003, compared with one year ago.
  • Jobs held by residents increased by 2%, while jobs located in the region remained essentially stable. Because jobs increased faster than labor force, the unemployment rate for the region declined to 3.7%, down from 4% one year ago.
  • According to the new classification system of industries, NAICS, goods producing jobs declined by nearly 5%, while service providing jobs increased by almost one half of one percent. Within those broad categories, manufacturing, information, business and professional services sectors all declined, while construction increased.
  • Homes sales declined, while home prices continued to increase for the region, a similar trend to New York State as a whole. The declines in this region and New York State are contrary to the national picture, where record low interest rates have spurred the real estate market. The declines in the numbers sold in this region could be due to lack of availability, affordability, or sales by owner which are not reported to the professional real estate systems.
  • There was a decline in building permits for the region as a whole, with increases only in Columbia, Dutchess, and Ulster. The average value per permit was roughly constant for the region, at $201, 568 for the regional average.
  • Passenger traffic and cargo shipments continued to decline at Stewart Airport.
  • Tourism indicators at the National Park Service and Presidential Libraries sites in Dutchess County were off by nearly 20% from the same quarter one year ago.
  • Sales tax collections increased for the region by over 10%, with gains in all counties. Sales tax rate increases have been voted by New York State and in two counties, Dutchess and Sullivan counties, and will take effect in June, 2003. Rockland and Ulster increased sales taxes in 2002, effective in March and September respectively.
  • Inflation, as measured by the New York/New Jersey metropolitan area, increased between 2.5% and 3% for the second quarter, slightly more rapidly than the average for all U.S. cities.
  • Bankruptcies for New York districts that include the Hudson Valley increased at a rate above the average for New York State and the U.S. The bulk of the increase was in nonbusiness filings.

Special Focus - Manufacturing

With the change in the industry classification system, long term trends will not be available for some time. This special focus looks at the employment trends in manufacturing according to the SIC definition. Even before the NAICS classification was implemented, manufacturing employment was declining significantly, from 35% of total employment in the U.S. in 1954 to 13% in 2002. In the Hudson Valley, manufacturing constituted 23% of total employment in 1979, and declined to 9% in 2002. The patterns vary significantly by county, with those counties with the largest share of manufacturing employment tending to have the highest average salaries. Productivity is also high for manufacturing workers, as reflected in higher Gross State Product per worker and higher compensation per worker at the state level.

According to the NAICS system, manufacturing is 12.4% of total employment nationwide, as an average for 2001-2002.

National Review
Second Quarter 2003

According to the preliminary estimates, Gross Domestic Product grew by 3.1% in the second quarter, 2003, the most rapid rate since third quarter, 2002. Consumption grew by 3.8% overall. The sizeable growth rate of purchases of durable goods, 24%, contrasted sharply with declines the previous two quarter. The low interest rates were a likely boost, as well as discounting by auto firms. Gross private domestic investment grew by .9%, a turn around from a decline in the previous quarter. Spending on equipment and software also increased by 8.2%, a growth spurt, in contrast to a decline in the previous quarter, and the sharpest increase since second quarter, 2000, the peak of the tech bubble. Spending on residential investment expanded by 4.5%, the sixth consecutive quarter of expansion, but slower than the previous quarter.

Exports declined for the third consecutive quarter, and imports increased by nearly 8%, in contrast to a decline in the previous quarter.

Government spending increased by a robust 8.2%, the strongest gains since fourth quarter, 2001. The largest gains were in defense spending, an increase of 45.9%, related to the war in Iraq, while state and local spending declined.

The implicit price deflator for GDP, the most comprehensive measure of domestic inflation, increased by .9%, the smallest growth rate since an actual decline in fourth quarter, 2001. The implicit price deflator for Gross Domestic Purchases, which includes imports, was even lower, at .2%, which represents the lowest growth rate for that indicator since third quarter, 2001.

Corporate profits increased by $88.3 billion in the second quarter, nearly 60% higher than the full year gain of 2002. In second quarter, 2003, 90% of the increase in profits were from domestic industries, and 10% from the rest of the world. For the full year of 2002, the increase in profits from domestic industries by $87.2 billion, which was offset by losses nearly one third as large from the rest of the world. By contrast, in 2001, domestic losses of $63.9 billion were partially offset by gains of $7.5 billion in the rest of the world.

The increase in economic growth for the quarter can easily be accounted for by the expansionary fiscal and monetary policy. All the stops have been pulled out, essentially, with tax cuts and record low interest rates. Still, employment is decreasing at the national level.

The stock market is showing signs of recovery. From a low of 7200 in October of 2002, the Dow Jones Industrial Average has exceeded 9000 since June, 2003. The NASDAQ hit a 16-month high of 1800 at the end of August, 2003.

In spite of the Fed's assurances regarding maintaining low interest rates, the yield on 10-year Treasury bonds has increased from 3.1% in June to 4.5% in mid-August, 2003. Rates on 10-year Treasuries had declined from a previous peak of 6.781% in early 2000. The same pattern led to an increase in home mortgage rates. In late August, 2003,, conventional mortgage interest rates had climbed back to 6.28% from record lows in mid-June of 5.21%. The mortgage refinancing boom may cool as a result. Further, according to Bianco Research in Chicago, the market value of mortgage securities now exceeds the market value of U.S. Treasury bonds. When interest rates fluctuate, the hedging strategies in the mortgage market can create wide swings in the yields of Treasury bonds.

Oil Prices

In the build-up to the war in Iraq, spot prices of crude oil increased to a peak of $35.83 in February, 2003. While the prices declined again just after the war, the prices rose again to $30.75 in July of 2003. By contrast, in 1996 dollars, the peak price of crude oil per barrel was nearly $60 in 1981, and $35 in nominal terms.

States' Fiscal Situation

States' tax revenue collections were hit harder in the 2001 recession than in the previous two recessions, in 1982 and 1991. Real per capital tax revenue declined by 7.4% in fiscal 2002, compared with 3.5% in 1991 and 2% in 1982. Those states that tax capital gains were particularly hurt by the decline in the stock market since 2000. Capital gains are not included in traditional measures of the economy, and so declines in state revenues exceed the declines in GDP for the recessions of 1991 and 2001. The declines in real per capital tax revenue were greater the national average in the New York/New Jersey metropolitan area, with the declines for New York State, New Jersey, and Connecticut, at 12.5%, 11.6%, and 10.6% respectively. As a result of the revenue declines, states have tapped reserves, which have declined from $22.4 billion in fiscal year 2002 to $11.6 billion in 2003, for 43 reporting states. During this time period, reserve balances as a percent of expenditures have dropped from 6% to 3.1%. As states move to cut spending and jobs, and revenues to education, these actions can act as a further drag on the overall economy.


Employment in manufacturing has been hit by trends in outsourcing and globalization, as well as the national recession beginning in 2000. Manufacturing employment has decreased by 1.8 million jobs since July, 2000, according to the new classification system, NAICS. At the national level, manufacturing is 12.4% of total employment, while for New York State it comprises 8.2%, and 4.3% for New York City. For the Hudson Valley region, as of second quarter, 2003, manufacturing employment represented 7.2% of the regional total, and 13.7% in Dutchess County, the location of major IBM production facilities.


The risks to the recovery include a growing federal budget deficit, projected to hit $500 billion next year, by the nonpartisan Congressional Budget Office, assuming constant defense spending in real terms for the reconstruction in Iraq. Large and growing government deficits tend to place upward pressure on interest rates, which in turn would slow sales of homes and consumer durables. In addition, the continuing large U.S. trade deficit may weaken the dollar, with foreigners now holding claims against the U.S. constituting 30% of GDP. At this point, the dollar has stabilized because of actions by Asian countries which continue to support the dollar, such as the fixed exchange rate of the Chinese yuan relative to the dollar, and the purchases of dollars by Japan to keep the yen more competitive. Essentially, Asian exporting countries are helping to support the dollar to maintain access for their goods to the U.S. consumer market. The U.S. gains cheap consumer goods while placing our own producers. competitiveness at risk. Without a decline in the dollar, U.S. manufacturing jobs may continue to migrate overseas, since exports from the U.S. production sites are not competitive with the persistence of the strong dollar. Although a strong dollar may hurt U.S. manufacturing, the strong dollar will contribute to the vitality of the financial sector of the U.S., since a stable currency reassures foreign investors about the safety of investment denominated in U.S. currency. A strong role for U.S. finance globally supports the centrality of New York City, while a falling dollar would threaten the role of New York City as a financial center.

Another source of continued risk is the persistent pattern of terrorism in the Middle East, and delays in infrastructure rebuilding in Iraq and Afghanistan. The national recovery, judged to have begun in November, 2001, by the National Bureau of Economic Research, remains fragile from the continued job losses at the national level.


These factors combined lead to a chance of stagflation re-emerging: If the dollar does decline significantly against Asian currencies, domestic consumer prices will rise, due to our increasing reliance on imports. Yet the loss of manufacturing jobs domestically will be difficult to replace, especially in the short run. Rising prices and low job growth will tend to a form of stagnation, even in the face of expansionary fiscal and monetary policy. These expansionary policies may be difficult to sustain since tax cuts will deepen the government deficit, and the interest rates are already effectively zero, in real terms.

Hudson Valley Review
Second Quarter 2003

Employment and Earnings

Place of Residence

The jobs held by residents increased by 2% over one year ago. Job gains were observed in all counties except Sullivan. The most rapid increases were in Columbia and Greene, with growth rates of 3% and 4% respectively. The slowest growth was in Ulster, with 1.25% over one year ago. Jobs held by residents declined by 2% in New York City, and there was essentially no change in New York State. The increase in jobs in the Hudson Valley region is all the more encouraging in the face of job declines in the U.S. as a whole.

The labor force grew more slowly or contracted more sharply than jobs, leading to a decline in the unemployment rate in all counties. Orange County was the exception, with an increase in the labor force slightly larger than the job growth.

The unemployment rate for the region declined to 3.72% for the second quarter, from 4% one year ago. The unemployment rate increased in New York City to 7.85% and increased in New York State to 5.89%.

Urban Unemployment

The unemployment rate in cities tends to be greater than the unemployment rate for the counties as a whole. For example the City of Poughkeepsie and the City of Newburgh have higher unemployment rates than their respective towns and counties. For Poughkeepsie, the city unemployment rate is 5.93% compared with the town's 2.31%, and for Newburgh, the city unemployment rate is 9.42% compared with the town's 4.18%. In Westchester and Rockland, the city/town/county differentials tend to be lower, suggesting more equal employment opportunities.

Place of Work

For jobs located in the region, employment increased from one year ago by less than one-half of one percent. In the goods producing sector, the gains in construction were almost fully offset by declines in manufacturing. In the service providing sector, which is the largest component of employment in the region, the largest increase was in education and health services, by .7%, and the largest decline was in professional and business services, by nearly 6%, from the same quarter one year ago. With the new NAICS industry code, what is now called professional and business services was at one time part of the manufacturing sector, under the categories of research and development, and executive and headquarters operations. The new NAICS categories make it clearer that the decline in manufacturing also affects service jobs rather directly, as well.

Leisure and hospitality jobs decreased slightly for the region, and government employment remained roughly constant. The new information sector, comprising newspapers, broadcasting, internet service companies, and communications, also declined by 4% for the quarter, compared with one year ago.

The strongest job gains were in Greene and Dutchess counties, and the only declines were in Sullivan and Ulster.

Employment declines for the quarter for New York City were 1.64% and for New York State .72%, compared with the same quarter one year ago. The sectors with the largest rate of decline included both manufacturing and information, for New York City and New York State. These trends suggest that the region and the state have been hit both by the burst of the internet bubble, as well as the globalization of manufacturing.

Hours and Earnings

Average hours and earnings for production workers in the counties are no longer available from the New York State Department of Labor.

Homes Sales and Prices

The number of existing homes sold decreased by 16.9% in the region during the second quarter, 2003, compared with the same quarter one year ago. The decline in the number sold was observed in all counties in the region, from year ago figures. The median sales price increased for all counties except for a slight decrease in Columbia. These regional patterns are consistent with those for all of New York State. The decline in homes sold may be due to lack of available supply, lack of affordability, or an increase in homes sold by owners, without the aid of professional realtors.

The region has slightly more homes sold on either end of the size distribution, both larger and smaller homes sold, than the average for all New York State, as measured by the number of bedrooms. For example, only 40.6% of the homes sold in the region have three bedrooms, compared with 46.8% for New York State. Seventeen percent of homes in the region sold during the quarter have two or fewer bedrooms, compared with 13.56% for New York State. Forty-two percent of the homes sold in the region have four or more bedrooms, compared with 39.6% for New York State. Westchester, Rockland, and Dutchess have the highest percent of larger homes sold in the region, with more than 40% with four or more bedrooms.

Construction Permits

For the region as a whole, there was a decline in construction permits from the same quarter one year ago, by over 6%. The pattern was mixed across counties, with strong gains in Columbia county and significant declines in Westchester.


There was a decline by nearly 20% of visitors to the Roosevelt/Vanderbilt sites operated by the National Park Service and the Presidential Libraries.

Regional Airports

Passenger traffic at Stewart Airport decreased, compared with the same quarter one year ago, due to the loss of service by carriers. The cargo tonnage at Stewart also declined significantly. Westchester county airport had decreases in passengers flying from Westchester to other sites, but increases in passengers flying to Westchester.

Retail Sales Indicator

Sales tax revenue collections increased for the quarter, with gains in all counties. For the region, the increase was over 10%, with no counties showing declines. The largest gain was in Rockland, while the smallest gain was in Westchester, at 5%.

Consumer Price Indexes

For the New York/New Jersey metropolitan area, consumer prices increased more rapidly than the average for all U.S. cities, while these increases still remained below 3% for the quarter. The average for all U.S. cities was closer to 2%.


Bankruptcies for the two regions, which include Hudson Valley counties, increased more rapidly than the New York State and the U.S. rates. In the southern district, which also includes New York City, the business filings comprise nearly 8% of the total. In the northern district, business filings are only 2% of the total. In both districts, the largest increases in filings were in the nonbusiness filings. In the southern district, the business filings actually decreased dramatically from year-ago levels. Since 2000, there has been an increase in the share of total bankruptcy filings which are business, increasing from 6.25% in 2000 to 9.72% in 2002. In the northern district, the share of business filings has declined during that period, from 3% to 2% of the total.

Special Focus - Manufacturing

This special focus will examine the long run trends in manufacturing employment in the U.S., New York State, and the Hudson Valley region. This examination will take place using the SIC definitions, prior to the implementation of the new NAICS definitions of industries. Because of the transition period to a new system of classification, the long term trends under the new NAICS system will be available only with a considerable lag.

Using the SIC system of industry classification, manufacturing has declined from 35% of total employment in 1954 to 13% in 2002. Services became the largest employment category in 1974 at the national level, with wholesale and retail trade as the second largest, and government in third place.

For the Hudson Valley as a whole, manufacturing declined from 23% of total employment in 1979 to 9% in 2002. Manufacturing is now the fourth largest sector of employment, according to SIC classification system, behind services, trade, and government. Dutchess and Ulster counties had the highest share of manufacturing employment in the region, both with IBM production plants, while Putnam and Sullivan have had the lowest share. In all counties, services is the largest sector of employment, and in some, Greene, Orange, and Sullivan, government is the second largest employer.

Manufacturing tends to be a relatively high paying sector, by the SIC definition. For the U.S. as a whole, manufacturing was either first or second in terms of pay throughout the period 1969 . 2000, with a similar pattern in New York State. Since the mid-1970s, manufacturing has been the highest paying sector in the Hudson Valley region as well, through 2000. Over much of that period, Dutchess county was either first or second in average annual earnings, with Westchester gaining significantly relative to Dutchess in the 1990s, after IBM downsizing. Manufacturing was also in highest paying sector in several counties, including Columbia, Dutchess, and Westchester.

The productivity of manufacturing workers is indicated by the relatively high Gross State Product per worker and compensation per worker, which is higher for that sector than for the average of all industries.

This sector is strategic for several reasons:

  • Higher productivity;
  • Higher earnings per worker;
  • Strategic linkages with other sectors, such as business and professional services, including research and development, which provides the foundation for continuous innovation;
  • Export base, earning revenue from other parts of the country and the world;
  • Providing a range of employment opportunities for a diverse population;
  • Security of local production, rather than relying on imports;
  • Security of maintaining and improving local technical and production skills, and testing ground for product innovation.


Wall Street Journal, New York Times, Business Week, U.S. Department of Labor, U.S. Bureau of Economic Analysis, New York State Department of Labor, New York State Department of Taxation and Finance, National Park Service, Stewart Airport, Westchester County Airport, New York State Association of Realtors, Federal Reserve Bank of Cleveland, Federal Reserve Bank of New York, Federal Reserve Bank of San Francisco Economic Letter, "Understanding State Budget Troubles," No. 2003-23, August 15, 2003, by Mary Daly; " State Budget and Tax Actions 2003," National Conference of State Legislatures; Donald J. Boyd and Nicholas W. Jenny, "State Fiscal Crisis Far Worse than Economy Would Suggest," Rockefeller Institute State Fiscal News: Vol. 3, No. 4, May, 2003; Joel Popkin and Company, Washington, D.C. "Securing America's Future: The Case for a Strong Manufacturing Base," June, 2003.