Summary

The Ways and Means Committee staff forecast released on February 26, 2001 called for significantly slower growth in national and State economic activity in 2001 compared to 2000. Though somewhat more optimistic than the current consensus, our forecast is on track through the first quarter of 2001. With real GDP in the first quarter growing at two percent, the vast majority of economists are now predicting that there will be no recession.

The upstate economy has grown slower than the nation, while the downstate economy continues to grow faster. The service sector has continued to perform strongly while the manufacturing sector has continued to decline and underperform. The State ranks 25th in employment growth. If upstate were a separate state, it would rank 42nd.

U.S. Economy

U.S. real GDP grew at 2.0 percent in the first quarter of 2001. This is higher than most forecasters expected. [While the real GDP estimate is subject to revision, the U.S. Bureau of economic analysis states that it "…is not likely to be revised below 1.4 percent or above 2.9 percent…"] Blue Chip Economic Indicators' most optimistic forecasters (top 10 percent average) had forecast real GDP to grow at 1.9 percent. The Ways and Means Committee staff's February forecast was 1.5 percent.

While the nation has clearly been in a manufacturing recession, the Purchasing Management Index rose in April for the third month in a row. This may signal that January 2001 was a bottom for the manufacturing sector.

Short-term interest rates have continued to decline. Inflation appears to be under control. The stock market rebounded in April. The Securities Industry Association estimates strong bond underwriting for the first quarter of 2001.

U.S. new Home Sales and existing Home Sales both increased over four percent in March, as low mortgage rates have more than offset the drop in consumer confidence in recent months.

However, while consumer spending is still growing at a healthy pace, U.S. unemployment inched up to 4.3 percent in March, and U.S. Consumer Confidence Index is down in April. Also, Corporate profits fell 4.3 percent in the fourth quarter after growing 0.6 percent in the third quarter of 2001.

No Recession

The Federal Reserve Board cut the Federal Funds Rate target to 4.5 percent on April 18, 2001 to counter the weakening economic picture and to stabilize financial markets. Since January of this year rates have been cut by 200 basis points. A federal tax cut would provide additional longer-term stimulus to the economy.

Recently, the Minneapolis Federal Reserve president said he does not see a recession and that the economy has stabilized. In addition, 90 percent of member economists of The National Association for Business Economics say the U.S. economy will not sink into a recession.

NYS Economy

The State, while growing more slowly than last year, is still growing faster than the nation. The first quarter 2001 exhibited a decline in State unemployment, while the U.S. economy exhibited growing unemployment. In March 2001, the State unemployment rate declined to 4.4 percent while the U.S. unemployment rate grew to 4.3 percent.

Employment in the State grew at a faster rate than the nation. Non-agricultural employment grew 1.5 percent in March 2001 compared to the same month a year earlier; meanwhile U.S. non-agricultural employment grew only 0.9 percent for the same period. The State added 129,700 jobs, of which 106,700 or 82 percent were created in downstate regions.

New York ranks 25th among the states in terms of total employment growth for the first quarter of 2001. With respect to private job growth, New York ranked 24th. Had upstate New York been a separate state, it would have ranked 42nd in total employment growth and 37th for private sector; downstate, on the other hand, would have ranked 16th and 18th on the corresponding counts.

• States with a higher share of employment in services tend to have a higher employment growth.
• States with a higher share of employment in manufacturing tend to have lower overall employment growth.
• New York stands fourth among all states in the share of employment in services (35.6 percent).
• New York ranks 38th among all states in the share of employment in manufacturing (9.8 percent).
• The average share of employment in services nationwide (30.7 percent) is more than twice the share of employment in manufacturing (14.0 percent).
• New York ranks 15th in service sector employment growth (3.5 percent).
• New York ranks 41st in manufacturing sector employment growth (-3.0 percent).