Barbara Byrne Denham, Chief Economist
It is inevitable in my line of work to be asked what my forecast is for the coming year. People want to know where the economy is headed, and there are pronounced concerns given all of the uncertainty with Europe, the tepid U.S. economy, layoff announcements from Wall Street and the steady release of very mixed statistics overall -- some signs of progress but just as many disappointments.
I always hesitate when asked this question because every year there is always a great deal of uncertainty, both domestically and abroad. Is this year all that different from the last few?
Consider the number one concern last year: oil prices had spiked due to the tumultuous activity in Egypt and the Middle East. Doesn’t that seem like a long time ago? The second most significant worry was the earthquake in Japan: many feared that it would disrupt the flow of goods around the world which would affect both GDP and job growth. Both of these stories made headlines but had faded from view by mid-year.
Europe had not been as much of a concern at this point last year but now is the number one most pressing concern. Each week, the news from Europe flip-flops back and forth: will they come to an agreement to handle the overall debt crisis or will some countries abandon the Euro? It had looked like a 50-50 call a month ago, but some promising developments have been reported and it appears that while Europe will continue to lag the rest of the world, they will hopefully avoid the worst-case scenario of a default.
The U.S. economy definitely seems to be on more solid footing today than it was a year ago as employment growth has accelerated slightly, the debt crisis was avoided for the near term and consumption growth remains positive. Still, all of this growth is at very low rates and nothing suggests that this rate of growth will accelerate any time soon.
What does appear to be the chief concern locally is the outlook for Wall Street: banks have issued record low earnings reports for the last two quarters; most have announced layoff plans and a number are cutting back on real estate. New York City is beholden to Wall Street for much of its economy – its high-paying workforce spends the bulk of their earnings in the city for condos, private schools, charities and cultural institutions, retail and restaurants. More importantly, the wage earners contribute a significant share of tax revenues to the city. Everyone is forecasting that Wall Street firms will shed another 5,000 or more jobs, and wages including bonuses will drop proportionately.
This will have a significant impact on the local economy, but the rest of New York City’s industries should continue to add jobs so the net gain should remain positive for the year. Where will this growth come from?
Tourism remains strong. European travelers to New York will likely drop in 2012, but other countries that have stronger economies could make up for these losses. The U.S. is reportedly stepping up its tourism marketing efforts abroad which should have a disproportionately greater impact on New York than other U.S. locales.
Private education institutions continue to expand. A number of local universities have accelerated expansion plans in connection with the city’s call for bids on a new engineering campus on Roosevelt Island or in Brooklyn. Hopefully, these plans will yield at least some job growth next year.
Finally, technology-related industries are hiring aggressively, at least that is what a number of anecdotal reports have said. While my monthly jobs numbers have yet to show significant growth in these industries, a few firms such as Facebook, Twitter and Tumblr have leased or are looking to lease space, and it seems as if this industry moves in herds just as Wall Street does . So when Google bought its 1.8-million-square-foot city headquarters building last year and announced plans to expand, other firms seemed to have responded in kind.
Yes, everything seems to circle back to real estate. New York City has had its ups and downs, but businesses prefer to operate in New York City because of its real estate, its central location, its transportation infrastructure and its density of talent. Moreover, the recent property sales data has indicated that investors remain more eager to buy properties in New York, especially multifamily properties, than elsewhere because of the stability. With the stock market volatility as high as its been, this is not surprising . And foreigners especially have had more faith in New York and the dollar than nearly anywhere else in the world. Why should this change?
Therefore, my outlook remains positive. I do not anticipate much accelerated growth in the statistics, either in New York or the U.S. but the good news should certainly outweigh the bad in the next year.
Barbara Byrne Denham directs the Research Center at Eastern Consolidated and is the Editor of its three quarterly newsletters, The MetroGrid Report, Manhattan Economic Indicators, and the Manhattan Commercial Property Sales Report; the monthly NYC Employment Alert; as well as a series of Research Reports, all of which are regularly cited in the press.
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