Employment growth in the New York-New Jersey region in 1998 is likely to match the previous year's pace of 1.7 percent, or 200,000 new jobs. Growth will continue in 1999, but it will slow modestly, to about 1.2 percent, or 145,000 new jobs.Federal Reserve District, 2nd ; Employment - New York (State) ; Employment - New Jersey ; Economic conditions - United States

James Orr

Rae D. Rosen

English

Research Papers in Economics

December 1998
The regional employment recovery that began in late
1992 showed no signs of subsiding in 1998. Job growth
in the New York–New Jersey region this year is poised
to match the 1.7 percent pace of 1997. In New York
City, exceptionally strong job growth of 2.3 percent—the
second-highest annual growth rate since World War II—
is expected to offset the modest deceleration elsewhere
in New York State and in New Jersey.
Employment growth will continue in 1999, but the
anticipated moderation of the national expansion and an
expected cooling down of local financial industry activity
will slow it modestly, to about 1.2 percent. Significantly,
the uncertain course of securities activity on Wall Street,
reflected in recent high-profile announcements of down-
sizings in major securities firms, opens the possibility of
an even greater slowing of financial employment next
year than we currently expect. Nevertheless, the region
will most likely maintain moderate employment growth
overall through 1999.
In this edition of Second District Highlights, we pre-
sent our forecast for job growth in the New York–New
Jersey region in 1999 and compare our forecasts for
New York City, New York State, and New Jersey. We also
discuss recent developments in the financial industry in
New York City and assess the risks to the region posed
by a significant further contraction in financial activity.
JOB-GROWTH FORECAST
The first three quarters of 1998 saw a continuation of
the regional employment recovery that has been under
way for roughly five years, and the full year’s growth
should reach 1.7 percent, or a little more than 200,000
new jobs (see table). While a diverse group of business
and consumer services accounted for more than half
of these new jobs, a number of industries—including
construction, trade, finance, and segments of the
transportation, communications, and public utilities
sector—also contributed to the region’s generally
healthy job growth. Manufacturing employment did slip
and government job losses continued, but at a slower
rate than in any year of the current recovery.
In 1999, job growth in the region is forecast to slow
modestly, to 1.2 percent, yielding roughly 145,000 new
jobs. The expected deceleration in the growth of the
national economy, though generally anticipated to be
moderate, will feed into the region and put some down-
ward pressure on growth.1 Nevertheless, considerable
momentum remains in three important sectors—
services, trade, and transportation, communications, and
public utilities—and jobs there are expected to continue
to grow at a pace only somewhat slower than the preceding
year’s. Moreover, new and ongoing projects will again
expand employment in the construction sector, albeit at
a reduced rate.
Several sectors of the region’s economy will see
reduced job levels in 1999. Within the finance, insurance,
and real estate (FIRE) sector, employment in New York
City’s financial industry is projected to decline. Although
stock trading volumes are currently healthy, several seg-
ments of the securities industry—notably emerging mar-
ket finance, initial public offerings, and merger and
acquisition activity—experienced a setback during the
third quarter of 1998.2 The slowdown should continue in
these segments, causing a modest paring of financial
industry employment next year.3 Moreover, a decreased
demand for financial services will have some negative
employment impact on supporting industries such as
printing, communications, and business services. The
New York–New Jersey Region’s Job Growth
to Continue in 1999, but Risks Have Risen
Volume 4  Number 14 FEDERAL RESERVE BANK OF NEW YORK
IN  ECONOMICS    AND FINANCE Second
district highlights Second
district highlightsregion’s banking industry will also see job levels fall,
with mergers continuing to lead to employment down-
sizings. The manufacturing sector will again experience an
employment decline as firms resume their long-term job
restructuring and relocation, but the pace will be a little
below that of previous years. Although government sector
downsizings will continue to depress job growth, the rate of
decline is expected to slow because the pressures leading to
the downsizings of the past several years should abate.
Within the region, the pace of employment growth
in 1999 will vary:
• In New York City—the region’s star performer
through September—job growth will decline
from the strong 2.3 percent expected in 1998 to
a more modest but still healthy 1.4 percent. The
services sector will again lead job creation,
followed by  the trade, construction, and trans-
portation, communications, and public utilities
sectors. Job declines in the region’s FIRE sector
will be heavily concentrated in New York City, and
the drops in the government sector are projected to
continue at the pace set in 1998.
• New York State’s job growth—at 1.0 percent—
will again lag that of New York City as the
momentum for growth in the state continues to
come largely from the city and downstate urban
areas. Only the services sector will add a
significant number of new jobs next year in
upstate New York.
• New Jersey’s job growth will slow mildly, to
1.6 percent, from the 2.1 percent pace expected in
1998. Although moderating growth at the national
level will affect New Jersey’s performance, employ-
ment in business services and construction will still
expand at a relatively healthy rate. As in 1998, the
main drag on growth will come from declines in
manufacturing and government employment.
THE IMPACT OF HEIGHTENED UNCERTAINTY
ON WALL STREET
In 1998, the region’s securities industry was well on its
way to a third consecutive year of record-breaking profits
before the markets began to experience turmoil in August.
Since then, a slowdown in several lines of business at
many securities firms and banks has led to layoffs and
touched off reports of potentially large job cutbacks and
significant declines in annual bonuses. The heightened
uncertainty in the industry is likely to carry over to 1999,
bringing risks to jobs and earnings performance, yet some
factors may mitigate these negative effects.
The Near-Term Jobs Impact. Because the region’s
financial industry remains vulnerable to further shocks
from the unusually unsettled international markets, job
growth in the industry could slow much more sharply
than we currently anticipate.4 Our assessment of the
impact of a Wall Street slowdown, however, suggests only
a small risk of a more significant decline in overall job
growth in the region in 1999—mainly because of two off-
setting factors.
First, although employment in the financial industry
is under pressure, the national economy is still expected
to grow moderately next year. This factor should generate
a reasonably healthy demand for the region’s financial
services.
Second, employment expansion should continue at a
moderate pace in the region’s services sector—which
boasts several rapidly growing industries whose near-
term performance is not tied exclusively to the demand
for financial services. Employment trends in these
industries point to the development of a sizable base of
job growth that is unlikely to weaken significantly over
the next year.5 In the twelve-month period ended
September 1998, the regional economy was driven
largely by a surge in the demand for services (see chart).
It is no surprise, then, that 70 percent of the job growth in
New York State and 60 percent of the job gains in New
FRBNY 2
Second district highlights
Employment in the New York–New Jersey Region:
Past and Projected Growth
Annual Percentage Change
1996 1997 1998 1999
New York and New Jersey 0.7 1.7 1.7 1.2
New York State 0.6 1.4 1.6 1.0
Private sector 1.0 1.8 1.9 1.3
Public sector -1.0 -0.6 -0.4 -0.3
New York City 1.0 1.7 2.3 1.4
Private sector 1.6 2.3 2.8 1.8
Public sector -2.1 -1.4 -0.9 -0.9
New Jersey 1.0 2.3 2.1 1.6
Private sector 1.3 2.8 2.6 1.9
Public sector -0.5 -0.2 -0.5 -0.3
Sources:  U.S. Department of Labor; Federal Reserve Bank of New York projections.
Note:  The 1998 and 1999 figures are projections.Second district highlights
York City and New Jersey occurred in the services sector.6
In addition, although job growth in securities and com-
modities firms was cyclically strong through September—
particularly in New York State—over the January-
September period, the region saw nearly three times as
many net jobs created in the business services segment
of the services sector. The engineering and management-
consulting segments of the services sector also made
strong contributions to job growth in 1998, and in recent
years the tourism, health care, motion picture, and private
education segments of the sector have expanded their
roles in the region’s economy.
The Earnings Impact. Positive employment trends sug-
gest that the region—through its broad job-creation
potential—would be somewhat insulated from a decline
in financial industry employment in 1999 that was mod-
estly higher than expected. However, a severe decline in
jobs—one that would result from a sustained fall in rev-
enues lasting three or four quarters—could have a signifi-
cant impact on earnings performance in the region.
Earnings data show that real wages per worker advanced
on average by 1.1 percent per year in New York and New
Jersey over the 1989-97 period. Yet if we exclude the
highly compensated FIRE sector employees from the cal-
culations, we see that real wages fell 0.4 percent per year
in New York and rose by just 0.6 percent in New Jersey.
Therefore, a sharp and sustained falloff in financial indus-
try activity could have far-reaching adverse effects on the
region. These effects could take the form of a decline in
personal and corporate income tax receipts, reduced
demand for business services that support the financial
industry, and a drop in retail trade activities.
Nevertheless, offsetting factors may soften the impact
of an earnings decline in 1999. For instance, any signifi-
cant reduction in financial industry revenues is unlikely to
be felt immediately. A sizable share of income in the
industry is paid in the form of annual bonuses in either the
fourth quarter of the current calendar year or the first
quarter of the new year, implying that most of the income
losses related to a severe financial industry decline in
1999 would not kick in until late in the year. Moreover,
bonuses generally reflect the full year’s performance.
Despite the reports of bonus declines, these payments
should be fairly strong in 1999 because the industry’s first
seven months of profits in 1998 were extremely robust,
and—despite the August market turmoil—profits are still
expected for the fourth quarter.
These factors notwithstanding, the impact of market
developments on financial industry earnings will clearly
be a pressing issue for the region in 1999. For instance, a
full year of subpar performance—three or four quarters
of desultory trading, accompanied by a drop in mergers,
acquisitions, and initial public offerings—would
sharply reduce earnings in this industry and could raise
3 FRBNY
1997-98 Contributions by Sector to Job Growth 
in the New York–New Jersey Region
New York City
Percent
New York State
Sources:  New York State Department of Labor; New Jersey State Department 
of Labor.
Note:  Figures are from third-quarter 1997 to third-quarter 1998.
-0.4
0
0.4
0.8
1.2
1.6
-0.4
0
0.4
0.8
1.2
1.6
New Jersey
-0.4
0
0.4
0.8
1.2
1.6
Total growth = 2.5 percent
Total growth = 1.5 percent
Total growth = 1.9 percent
Finance,
insurance, and
real estate Services
Trade
Construction
Transportation,
 communications,
 and public utilities
Government
ManufacturingThe views expressed in this article are those of the authors and do not necessarily reflect the position of
the Federal Reserve Bank of New York or the Federal Reserve System.
Second District Highlights, a supplement to Current Issues in Economics and Finance, is published by the Research and
Market Analysis Group of the Federal Reserve Bank of New York. Dorothy Meadow Sobol is the editor.
Editorial Staff:  Valerie LaPorte, Mike De Mott, Elizabeth Miranda
Production:  Carol Perlmutter, Lingya Dubinsky, Jane Urry
Subscriptions to Second District Highlights are free. Write to the Public Information Department, Federal Reserve Bank
of New York, 33 Liberty Street, New York, N.Y.  10045-0001, or call 212-720-6134. Second District Highlights is also
available at the Research and Market Analysis Group’s web site: http://www.ny.frb.org/rmaghome/curr_iss/sec_dis.
Second district highlights
questions about a continuation of the region’s job recovery
in 2000. Significantly, although New York City faces
the greatest risk, neither New York State nor New Jersey
is immune to the effects of a sustained decline in Wall
Street profitability.
CONCLUSION
Our outlook for regional job growth in 1999 remains
fairly optimistic, with employment growth expected to
slow but still to equal or exceed 1 percent in New York
City, New York State, and New Jersey. The regional
economy is projected to add roughly 145,000 jobs, fol-
lowing a gain of 200,000 jobs in 1998. We attribute this
sustained growth to two factors. First, although national
economic growth is expected to slow, it will still be in the
neighborhood of 2 percent and thus will not depress
regional job growth excessively. Second, key services
sector industries such as tourism, private education, and
management consulting are expected to remain strong.
However, a prolonged decline in such Wall Street
businesses as trading, initial public offerings, and mergers
and acquisitions could raise questions about the New
York–New Jersey region’s ability to sustain job growth
in 2000. While moderate growth in 1999 remains the
most likely prospect, the risks to the region have
increased.
—James Orr and Rae D. Rosen
NOTES
1. GDP growth is forecast to slow to 2.1 percent in 1999 from the
3.4 percent pace expected for 1998 (Blue Chip Consensus Forecast
1998). This slowdown is not expected to cause a significant increase
in unemployment.
2. Initial public offering and merger and acquisition activity slowed
sharply in the summer and early fall. Recent reports, however, show
some pickup in pace. Both activities are significant sources of
income and employment in the financial sector and in related busi-
ness services in the region.
3. Many securities firms have already announced job cutbacks.
For example, on October 13, Merrill Lynch reported its plan to
reduce employment by 3,400 full-time workers and 900 full-time-
equivalent consultants. The cutbacks are to be accomplished
through a combination of severance and attrition, although the
exact timing has not been specified. About half of the affected
employees work in the New York–New Jersey region, with roughly
an equal number in each state. Potential job cuts at other financial
institutions in the region have also been reported, but the exact number
of cuts and the extent to which the reductions will be accomplished
through attrition have not been indicated.
4. Financial industry employment in the region is expected to be flat
in 1999 compared with the 1.5 percent growth expected in 1998 and
the 0.9 percent growth recorded in 1997. In New York City, financial
industry employment is expected to decline by about 1.0 percent in
1999 after expanding by 1.4 percent in 1998. 
5. For example, see Bram and De Mott (1998) for a discussion of
job growth in the new-media industry and in traditional media
industries in New York City, and Bram (1995) for a description of
the tourism industry’s role in the region.
6. This trend continues the pattern of job growth seen throughout
this recovery. See Orr and Rosen (1997).
REFERENCES
Blue Chip Consensus Forecast. 1998. Vol. 23, no. 11, November 10.
Bram, Jason. 1995. “Tourism and New York City’s Economy.”
Federal Reserve Bank of New York Current Issues in Economics
and Finance 1, no. 7 (October).
Bram, Jason, and Mike De Mott. 1998. “New York City’s New-Media
Boom: Real or Virtual?” Federal Reserve Bank of New York
Current Issues in Economics and Finance 4, no. 10 (October).
Orr, James, and Rae D. Rosen. 1997. “The New York–New Jersey
Job Recovery.” Federal Reserve Bank of New York Current
Issues in Economics and Finance 3, no. 12 (October).

New York City’s New-Media Boom: Real or Virtual?” Federal Reserve

The New York–New Jersey Job Recovery.” Federal Reserve Bank of New York Current Issues

Tourism and New York City’s Economy.” Federal Reserve Bank of New York Current Issues in

New York-New Jersey region's job growth to continue in 1999, but risks have risen

http://www.newyorkfed.org/research/current_issues/ci4-14.html

New York-New Jersey region's job growth to continue in 1999, but risks have risen

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