NYC-WTC_000195490

NYC 9/11 Public Portal Document

ECONOMIC OUTLOOK

Overview ' I The U.S. economy is at a delicate junction in the economic cycle. Signs of the slowdown that began in the second half of 2000 have intensified, and hopes of a rapid turnaround have dwindled. So far, however, only the manufacturing,sector has contracted, due to a build-up in inventories and over-capacity. Outside of manufacturing, growth has decelerated but several key indicators are still showing resilience. Most importantly, consumption spending continues at a healthy level even as the drop in the equity markets has wiped out almost $5 trillion from consumer wealth. The housing market has also until now sustained the downturn without much damage, buffered by the Fed’s recent cuts in interest rates. The national outlook, therefore, calls for real GDP (Gross Domestic Product) to grow 1.7 percent in 2001 with consumption/spending at ,three percent, just enough to avert a recession. Non-residential fixed investment spending will drop to three percent after a decade of remarkable growth which brought its share of overall GDP froth 10 percent in 1993 to 15 percent in 2000. Corporate profits will also take a severe hit in 2001 and are expected to be down 6.1 percent. Overall job growth will fall to under 1 percent, with gains in the service-producing sectors offsetting steep losses in manufacturing. The economy will pick up in 2002, but only gradually, as the drag front the capital build-up subsides; GDP is expected to grow by just over 3 percent in 2002 before resuming growth of about 4 percent per year in 2003-2005. Moderate employment growth throughout the forecast period should keep inflationary pressures contained despite concerns over rising medical prices and the recent spikes in utility prices, particularly in some regions of the nation. At this point, with U.S. growth slowing, the manufacturing sector in a recession, an energy crisis in the country’s largest state, and a stock market well off its peak, the outlook is tenuous. However, low unemployment and inflation, a relatively healthy housing market and a proactive Federal Reserve continue to suggest that a recession can be averted. Of course as in any period of economic slowdown, the risks grow to both the U.S. apd the local economy. The City's economy is also expected to experience a hgnificant slowdown in growth from the boom of recent years, which saw unprecedented private sector employment gains of almost 100,000 jobs in 2000. The , City's higher reliance on the service sector will enable it to grow at a faster rate than the U.S. in 2001, with employment expected to grow 1 percent, a gain of almost 33,000 private sector jobs. The impact of the slowdown, however, will fall more heavily in ,2002. , ’ ( In 2002, ip addition to the slowdown at the national level, the City's economy will also be impacted by a forecast drop'in Wall Street profits from a record high of $21 billion in 2000 to $5.5 billion in 2001. As a result, FIRE employment in 2002 is expected to decline by 10,000 jobs, 6,000 in the important securities sub­ sector. Overall employment, therefore, rises just 7,000 in 2002 as the loss of these highly paid jobs ripples ! ; throughout the economy? Job growth then picks up to 42,000 jobs on average per year in 2003-2005 as the 1 economy gradually rebounds. I I( i The recent drop in the stock market and the anticipated decline in New York Stock Exchange member­ 1 1 firm profits will also have a significant impact on overall bonus payouts. Overall bonus payouts in the FIRE sector are expected to fall precipitously and are down fifty percent in 2001. Wage income as a result grows by only 2'/? percent per year in 2001-2002, down from over 11 percent in 2000, though outside of FIRE the slowdown will be less pronounced. As profits on Wall Street rebound along with the economy, wage income is also forecast to pick up, to about 5'/? percent growth per year in 2003-20Q5. Finally, the economic I slowdown is expected to only have a minimal impact on the real estate market. The commercial real estate market is heading into this slowdo'wn in much better shape than in past slowdowns, when speculative building resulted in an oversupply. In the latest expansion, the amount;of new inventory added has been minimal. I * All economic data are on a calendar year basis while all tax revenue data are on a fiscal year basis ending June 30. ;( H H 20

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