Lag Time

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun
NY Sun
NEW YORK SUN CONTRIBUTOR

New Yorkers could be forgiven for scratching their heads in puzzlement at yesterday’s report from the city comptroller announcing that the economy’s growth rate held steady at 3.4%. Their morning papers were reporting that those who measure the blistering growth of the George W. Bush economy have just had to revise upward the third-quarter GDP growth numbers to 4.3% from an initial estimate of 3.8%. This marked an acceleration from the second quarter’s growth rate of 3.3%. Growth is growth, to be sure, and 3.4% in the city is nothing to sneeze at. But why can’t the city keep up with the nation?


That question becomes even more pressing as one delves into other statistics in this latest report. The national unemployment rate, seasonally adjusted, fell to 5%. The city’s unemployment rate fell only a tenth of a percentage point, to 5.6% from 5.7%, between the second and third quarters of this year. The city also lagged in the growth of payrolls, which grew nationally by 1.6%, but 1.2% in the city. On the price front, overall inflation in the city grew to 4.1% in the third quarter from 3.3% in the second quarter, compared to a jump to 3.8% from 2.9% nationally. If one excludes food and energy prices, the national inflation rate fell 0.2 percentage points to 2%, while in New York prices still rose 0.2 points to 2.8%.


While it can be dangerous to read too much into quarterly fluctuations, this latest round of data reinforces concern over the longer-term trend. As a Manhattan Institute scholar, Steven Malanga, has noted in these pages before, New York has lagged the rest of the nation ever since the latest recession started to fade. Even when it appears to be growing, the city’s growth isn’t necessarily coming in the right areas.


Consider that payroll growth. The city added a net of 10,800 jobs in the third quarter. But of the 16,600 new private-sector jobs, only 1,800 of those were on Wall Street while most of them – 7,100 – were in “education and health services.” That low figure for the financial activities sector is cause for concern, Mr. Malanga told us yesterday, because Wall Street has traditionally been an economic engine in the city. The low job growth is also a jarring contrast with the Wall Street profitability marked in the comptroller’s report. Titans like Citigroup, Goldman Sachs, JPMorgan Chase, and Merrill Lynch are all predicting significant increases in profits for the year, but they are only expected to add about 7,000 jobs within the city, which would still leave New York 20,000 financial service jobs short of its 2000 peak.


Part of the problem is that those firms are adding jobs elsewhere, Mr. Malanga says. A post-September 11 desire to disperse their workforces plays a role, but city policies are a major deterrent, too. To offer but one example, the average real estate tax for one square foot of office space in New York City is $13. It’s $2.50 in New Jersey. Multiply those tax rates by the 250 square feet an average office worker uses and then pile on the higher corporate and personal income taxes in New York, and all of a sudden one starts to see why creating jobs across the river seems so much more appealing. As a result, firms keep only their most valuable – and highest paid – employees in New York while sending their upper-middle-class positions elsewhere. This might help explain an increase in personal income tax withholdings in the third quarter, but it doesn’t do much to keep a middle class in the city.


We wouldn’t want to represent the latest economic report as any kind of catastrophe or cause for despair. The city’s economy did grow by an impressive rate, after all, and the national growth rate itself established a remarkable benchmark. The mayor can take much credit for guiding the city through a difficult four years. But the time to really break out the champagne will be when New York is outpacing the rest of the country. Now is the time for the city to focus on reducing the taxes and regulations in a way that sharpens incentives for individuals and the private companies that employ them to work and invest in the city.

NY Sun
NEW YORK SUN CONTRIBUTOR

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.


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