Comptroller Stringer: City Economy Accelerated in Third Quarter, But Signs of Weakness Persist

City’s economy grew 2.6 percent, slightly lower than 2.9 percent growth in national Gross Domestic Product 

Private sector earnings were sluggish while City saw weaker personal income tax growth

City unemployment rate ticked up slightly to 5.5 percent

    New York City’s economy expanded in the third quarter of 2016, with growth slightly below national Gross Domestic Product expansion of 2.9 percent, according to the latest Quarterly Economic Update released today by New York City Comptroller Scott M. Stringer. The report found that the City’s economy grew 2.6 percent during the late summer and early autumn of 2016.

Although the City’s economic growth picked up the pace, concerning trends have persisted since the beginning of the year. In the third quarter, 26,800 private sector-jobs were created, but most new jobs – 14,300, or 53.4 percent of all growth – were in low-wage industries, which pay an average wage of about $42,000. Mid-wage jobs grew by 13,700, more than double the 6,900 of these jobs added in the second quarter. The City lost 1,100 high-wage jobs, the second consecutive quarterly drop – which has not happened since 2009.

Despite the growth in private-sector jobs, the unemployment rate increased slightly in the third quarter, growing from 5.2 percent to 5.5 percent citywide. In addition, New York City’s personal income tax revenues grew just 0.6 percent on a year over year basis, compared to an 8.7 percent year-over-year rise between the third quarters in 2015 and 2014. That’s as estimated tax payments – a reflection of non-wage income like capital gains and rental income – fell 9.6 percent. Jobs in the construction industry also declined for the first time in three years, falling 3.6 percent in the third quarter.

Commercial real estate, however, improved during this time period. While the Manhattan office vacancy rate increased to 9.1 percent from 8.9 percent a year ago, new leasing totaled 6.9 million square feet in the third quarter, which is 5.8 percent higher than the third quarter of 2015. That increase follows four consecutive quarters of contraction. The residential housing market had more mixed results, as prices in Manhattan rose, but the number of home sales fell.

Venture capital investment in the New York City metro area declined for the second consecutive quarter but performed better than the national trend. While total venture capital investment in the U.S. fell 36.4 percent and investment in Silicon Valley fell 43.5 percent, the New York City metro area saw a decline of 28.5 percent to $1.4 billion.

“While New York City’s economy continues to expand, we’re seeing areas of concern emerge – areas for which we have to prepare and plan,” New York City Comptroller Scott M. Stringer said. “Is this a reason for alarm now? No. But if some of these trends continue next quarter or farther down the road, should we be concerned? Probably. As I’ve said, when times are good, we have to make smart, strategic investments and properly save for when tougher times arrive. That’s something we must consider as we watch these numbers closely over the coming months.”

Released every quarter, the Comptroller’s Quarterly Economic Update examines a broad range of data that reflect current economic conditions in New York City. The report also highlights relevant national indicators. Though numbers can change significantly from quarter to quarter, they can be used to inform what could be potential long-term trends. This quarter’s report was prepared just prior to the Presidential Election.  Findings include:

City’s economic growth accelerated, after a quarter of slower growth

• Real Gross City Product – a measure of the City’s overall economic growth – expanded at an estimated annual rate of 2.6 percent, a full percentage point higher than last quarter.
• This rate of growth was slightly below the national GDP, which grew 2.9 percent in the third quarter of 2016.

Strong private-sector job growth returned

• New York City’s employers got into gear in the third quarter, adding 26,800 jobs. This is more than double the 10,400 jobs that were added in the second quarter.
• These new jobs were split evenly between low-wage and medium-wage industries, which added 14,300 and 13,700 jobs, respectively.
• The fastest-growing industry remained leisure and hospitality, which has seen seven years of uninterrupted growth. In the third quarter, this industry added a record 12,800 jobs. Education and health services also saw robust job growth, adding 8,200 jobs.
• The construction industry, on the other hand, experienced its first decline in three years, contracting 3.6 percent in the third quarter.

Unemployment rate inched up, while hourly wages saw some growth

• Despite the growth in private-sector jobs, the unemployment rate increased slightly, from 5.2 percent to 5.5 percent citywide.
• Average hourly earnings for a private-sector employee in New York City grew 1.1 percent from the same time last year to $34.01. Average hourly earnings had grown 3.8 percent in the third quarter of 2015 over the same period in 2014.

Personal income tax collection growth remained weak

• Personal Income Tax revenues – an indicator that reflects both wages and non-wage income and serves as a proxy for total personal income – rose 0.6 percent year-over-year to $2.2 billion.
• Personal income taxes withheld from paychecks, which reflect trends in employment and wages, grew 2.2 percent to over $1.7 billion in the third quarter. Estimated tax payments – a reflection of non-wage income like capital gains and rental income – fell 9.6 percent compared to a year ago, hitting $460 million.

Venture capital investment fell nationwide, but New York City fared better than most

• Year-over-year, total venture capital investment in the United States fell 36.4 percent to just $10.6 billion in the third quarter of 2016.
• The New York City metro area saw a decline of 28.5 percent compared to the same time last year. While this is a substantial decline, other areas faced larger decreases.
• Over the same time period, venture capital investment fell 78.3 percent in Upstate New York and 43.5 percent in Silicon Valley.

New commercial leasing expanded, bucking a year-long decline

• New commercial leasing activity totaled nearly 7 million square feet in the third quarter, up 5.8 percent from the same time last year. This marks the first increase after four quarters of year-over-year declines.
• This activity was concentrated in Midtown, where 5.1 million square feet was newly leased. Midtown South saw one million square feet of new leasing activity and Downtown saw 850,000 square feet of new leasing activity.

Residential real estate prices continued to increase

• The average home sale price in Manhattan rose 17 percent from a year ago to over $2 million, and the average price per square foot rose 13 percent to $1,692.
• These Manhattan prices were skewed higher by new developments. The median sales price of a new development almost doubled to $4 million in the third quarter, while the median price of resold homes rose only 2.6 percent to $950,000.

• In Brooklyn and Queens, housing prices and sales both increased. In Brooklyn, the average sales price rose 14.8 percent to $983,511, while in Queens the average sales price rose 7.6 percent to $561,966.