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October 1995

Volume 1 Number 7

Tourism and New York City's Economy
Jason Bram

In New York City, tourism has made impressive gains in recent years, particularly in the
foreign visitor segment. While not large enough to propel the city’s economy, this long-term
growth industry is critical to maintaining the local export base and providing jobs to
low-skilled workers.

Tourism is one of the few bright spots in New York
City’s economy. Between 1977 and 1994, employment
growth in local tourist-related industries was more than
six times the rate for the city as a whole. At the end of
that period, hotel occupancy rates reached a six-year
high, and in 1995 they are expected to rise even further.
Besides providing direct benefits to local businesses,
tourism has helped to maintain the city’s export base,
which has suffered from declines in manufacturing.1
What forces drive foreign and domestic tourism in
New York City? How profoundly does this industry
affect the city’s economy? This edition of Current
Issues explores these questions by measuring tourism’s
contribution to employment, earnings, and retail sales
in New York City, and by comparing the results with
figures for the United States as a whole. It also discusses the critical role of foreign visitors and introduces an exchange rate affordability index that can
help assess conditions for foreign tourism.
How does the analysis add up? Tourism is a small
but growing industry that can provide important economic and social benefits to New York City now and in
the years ahead.
Who Are New York City’s Tourists?
A discussion of the economic impact of the tourism

industry requires that we first define the term “tourist.”
Are visitors, business travelers, visiting friends, and
relatives from out of town considered tourists?
According to the most commonly accepted definition
of the term, the answer is “yes.” Specifically, New
York City tourists include all foreign and domestic visitors from outside the metropolitan area, except for
commuters.2 The tourism industry, in turn, comprises
the business these individuals generate through spending while in the area.3 Tourist expenditures are a more
effective measure of tourism’s impact than number of
visitors because the duration and nature of visits vary
substantially. For example, one person on a day trip to
the city will spend substantially less than a person who
stays for a week.4
The majority of visitors to New York City come
from the Northeast. According to a comprehensive
study on tourism in the region, close to two-thirds of
visitors reside within 250 miles of the city (Port
Authority 1994). However, because many come on day
trips, their share of total tourist expenditures is relatively low—less than 30 percent.
Visitors from other parts of the United States
account for roughly 30 percent of spending, which
is fairly evenly distributed among tourists from the
West, Midwest, and the South (excluding areas


tive advantage in attracting visitors from abroad.
Fifteen percent of tourists to the area are from foreign
countries, compared with less than 5 percent nationally
(Port Authority 1994).

within a 250-mile radius of New York City, such as
Washington, D.C.).
But it is foreign tourists who play the most important role in New York City’s tourism industry. They
represent just 15 percent of visitors but more than
40 percent of all tourism expenditures (Port Authority

Finally, this segment’s contribution has substantial
growth potential. Worldwide tourism is expanding at a
much faster pace than the U.S. market—a trend that is
projected to continue.

The Unique Role of Foreign Tourists
Besides generating nearly half of New York City’s
tourism revenues, the foreign visitor segment is a
strategic part of the city’s economy for several reasons.
First, since overseas business cycles can be out of sync
with local ones, foreign tourism can grow while the
local economy is stagnant or contracting. As a result, in
slow periods, this segment of the industry can serve as
a stabilizing economic force.

What Drives Tourism?
To answer this question, we developed a crude statistical model that uses hotel occupancy rates as a proxy for
tourism (see box below). Tests of the model suggest
that the value of foreign currencies against the dollar
appears to be an important determinant of foreign
tourism. For example, in the mid-1980s, while the
Northeast economy was booming, the strong dollar
clearly deterred foreign visitors. Conversely, in 1987-88,
a plunging dollar gave the industry a boost (Chart 1).

Second, New York City’s unparalleled diversity of
attractions and cultures gives it an enduring competi-

A Statistical Model of Tourism
Using hotel occupancy rates (PKF Consulting) as a
rough proxy for local tourism, we developed an equation to identify the factors that most influenced
tourism in the 1976-94 period. The two variables that
proved to be significant were foreign exchange rates
(for foreign tourism) and changes in employment levels in the Northeastern United States (for domestic
tourism). National employment and income trends
were also tested as a factor but did not prove to be

based on research showing that most domestic visitors come from within 250 miles of the city (Port
Authority 1994). The two-year growth rate was used
to capture the cumulative impact of trends in
While the sample period is fairly small and the
hotel occupancy rate is an imperfect barometer of
tourism, the relationship between these two variables
and tourism is clearly significant. When taken
together, the measures can explain about 80 percent
of the variation in hotel occupancy. The following
example illustrates the relative effects of the two
variables: in the regression, a 0.5 percentage point
increase in regional job growth—or a 6.7 percent
appreciation of foreign currencies against the dollar—will tend to push hotel occupancy rates up by
1 percentage point.

To develop a single measure of foreign exchange
rates, we first created indexes based on U.S. dollar
per currency unit for each of eight countries: Canada,
the United Kingdom, Japan, Germany, France, Italy,
Switzerland, and Spain. These countries together
accounted for two-thirds of visitors to New York City
in 1992. Each country’s index was then weighted
according to the 1992 distribution of foreign visitor
expenditures in New York City (Port Authority
1994). The resulting index, used in the equation,
serves as a measure of exchange-rate affordability for
the home countries of most visitors to New York City.

The model does not explicitly differentiate
between foreign and domestic tourism. However, it is
logical to conclude that exchange rates affect foreign
tourism, while regional growth relates to domestic
tourism. Thus, to separate out foreign effects, we factored the exchange rate index into the model and held
the domestic variable constant at its average level.
Conversely, we estimated the domestic tourism
effects by factoring in regional job growth and holding the exchange rate constant. Chart 1 shows patterns in actual hotel occupancy rates and the predicted values based on domestic and foreign variables over the past two decades.

For the other variable, regional job trends, we
used a two-year moving average of the percent
change in total employment in twelve Northeastern
states (Connecticut, Massachusetts, Rhode Island,
Maine, New Hampshire, Vermont, New York, New
Jersey, Pennsylvania, Delaware, Maryland, and the
District of Columbia) excluding the New York City
metropolitan area. The selection of these states was



other parts of the country, this group appears to curtail
its visits to New York City during periods of high
regional unemployment.

Similarly, in recent years, a weak dollar has brought
droves of tourists from overseas. (Special events, such
as the World Cup matches, may also have helped
attract foreign visitors in 1994.) Since Western
Europeans account for more than half of foreign visitor
spending, the strength of European currencies against

Thus, the 1991-93 slump in tourism (Chart 1) was
apparently due, in large part, to a severe regional recession, exacerbated by a hotel-room surtax instituted in
1990. In 1994, however, regional job growth was at its
strongest in six years, and the tax was repealed. Both
factors evidently contributed to a rebound in tourism.

New York City’s unparalleled diversity
of attractions and cultures gives it
an enduring competitive advantage in
attracting visitors from abroad.

How Important Is Tourism?
A very broadly defined industry, tourism is larger than
most narrowly defined sectors in New York and nationwide. But compared with other broad industry groups
such as finance, business services, and even manufacturing, tourism is relatively small. A special study conducted by the New York Convention and Visitors
Bureau estimated that visitors to the city spent
$10.5 billion in 1992, equal to 5.5 percent of city personal income. For that year, this revenue directly supported 4 percent of local employment (131,000 jobs)
but only 2.5 percent of wage earnings, because tourismrelated jobs tend to be low paying. Estimates by the
Port Authority for the same year show similar results.6

the dollar helped the industry in 1995—to date, hotel
bookings and retail spending in tourist-intensive industries are reportedly strong (Kamen 1995).
Not surprisingly, domestic tourism, which accounts
for more than half the market, is driven by conditions
close to home. In tests of the model, changes in
employment levels in the Northeast 5 proved to be a
major factor, while employment trends in the rest of the
United States did not. The fact that nationwide economic conditions do not play much of a role may
reflect a substitution effect: in other words, U.S. residents’ tendency to travel less during economic slumps
is offset by a shift in preference toward New York City
over more exotic—and expensive—overseas destinations. This substitution effect is not evident among visitors from the Northeast. In contrast to tourists from

The industry’s true impact on the local economy is
difficult to assess. Because tourism represents a market
of end-users rather than a particular category of goods
or services, it is not defined as a discrete industry in the
codes used for government statistics. Therefore, we use
tourist-intensive industries (such as hotels, restaurants,
and museums) as proxies to measure tourism sales,

Chart 1

Chart 2

The Determinants of Tourism

Share of Employment and Earnings in
Tourist-intensive Industries

Effects of Exchange Rates and Regional Growth on Hotel Occupancy Rates

New York City Relative to the United States

Hotel occupancy rate (New York City)

Percent share



Exchange rate

Museums and
cultural attractions


and recreation





Eating and
drinking places










94 95

United States New York City

Source: Hotel occupancy rates are based on data from PKF Consulting.
Note: The chart is based on a regression of hotel occupancy rates against
regional job growth and exchange rates (see box on p. 2). Regression results
are available from author on request.

United States New York City

Sources: U.S. Bureau of Labor Statistics; New York Department of Labor.



souvenir shops tells a different story. 8 By this crude
measure, New York City surpasses the United States
overall and is outranked by just four other metropolitan
areas 9—Las Vegas, Orlando, Honolulu, and San
Francisco (Chart 3). New York City also outstrips
Buffalo–Niagara Falls and all other Second District
metropolitan areas, which rate slightly below the
national average (Chart 4).10

employment, and earnings. To assess tourism’s relative
importance to New York City, we then compare its share
of economic activity locally with its share nationwide.
Employment and Earnings: By this measure,
tourism’s contribution to the area’s economy appears to
be modest. The hotel industry—the most relevant sector because it almost exclusively services visitors—
employs 1 percent of New York City’s workers and
accounts for just 0.7 percent of total wage earnings.
Both of these proportions are well below the national
average. For a broader range of tourist-intensive industries—eating and drinking places, amusement and
recreation services, museums and cultural attractions—
tourism still accounts for a smaller share of both
employment and earnings in New York City than
nationally (Chart 2).7
Retail Sales: The share of retail and related sales in
tourist-intensive sectors such as hotels, restaurants, and

What, specifically, do tourists spend their money
on? On average, visitors to New York City allocate
less of their budgets to hotels than do visitors to virtually all other cities. The modest amount tourists spend
on lodging evidently reflects the large number of daytrippers and visitors staying with friends and relatives. 11 In contrast, outlays at eating and drinking
places, amusement and recreation services (which
include the arts), and souvenir or gift shops are relatively high. In addition, the city’s status as a fashion

Chart 3

Chart 4

Share of Business Sales in Tourist-intensive
Industries: U.S. Metropolitan Areas
Las Vegas
San Francisco
New York City
Los Angeles
Orange County
New Orleans
San Diego
Washington, D.C.
San Jose
United States
St. Louis
Kansas City
Riverside-San Bernardino

Share of Business Sales in Tourist-intensive
Industries: Second District Metropolitan Areas
New York City
Jersey City
Buffalo-Niagara Falls
Dutchess County


Eating and
drinking places


and recreation


Souvenir and
related shops






Sources: 1992 Census of Retailing; 1992 Census of Services.

Eating and
drinking places
and recreation

center evidently boosts visitor spending at apparel
stores—sales are substantially higher than can be
accounted for by resident purchases. These spending
patterns are consistent with survey findings showing
that the city’s primary draws are shopping, dining, and
the arts (Port Authority 1992).

Souvenir and
related shops




Why the Difference? The two proxies—employment/earnings and retail sales—are not necessarily
contradictory. Tourism’s impact may appear large in
terms of retail sales but modest in terms of employment


Sources: 1992 Census of Retailing; 1992 Census of Services.



While tourism—both domestic and foreign—is critical to hotels, theaters, and a wide range of local retail
industries, it is not large enough to propel the city’s
economy. Still, as a growing export industry that
employs a significant number of low-skilled workers,
tourism has clear benefits for the metropolitan area.

and earnings because New York City’s economy is
dominated by nonretail industries, most notably financial services. Because retailing on the whole is a much
smaller part of the city’s economy than the nation’s,
using retail sales as a base overstates tourism’s relative

Tourism tends to benefit the local
economy more than intraregional commerce
because of indirect “multiplier” effects.

1. In a regional context, the term “export” refers to sales to individuals from outside the region, though not necessarily from outside
the country. The region, in this case, is the New York City metropolitan area.

importance. Nevertheless, visitor outlays flow into the
city’s economy not only through wages, but also
through profits, sales taxes, rents, and other expenses,
all of which are high in New York City. As a result,
employment and earnings tend to understate tourism’s

2. In most cases in this article, the metropolitan area refers to New
York City plus twelve counties within commuting distance:
Nassau, Suffolk, Westchester, Rockland, Passaic, Bergen, Essex,
Hudson, Union, Middlesex, Morris, and Somerset.
3. The tourism industry, as defined here, excludes outlays for transportation to and from New York City (for example, air and rail
fares). Such expenditures are as indicative of local residents’ travel
outside the region (imports) as visitors’ travel to the region
(exports). Moreover, transportation revenues do not necessarily
accrue to the local economy.

A Positive Impact
Clearly, tourism cannot make or break the city’s economy, but it does play a positive role in several ways.
First, by generating many low-skill (albeit low-paying)
jobs, tourism provides much-needed employment
opportunities for poorer segments of the population.

4. In citing numbers of visitors in this article, we count the number
of distinct trips rather than the number of people.
5. The Northeast, as defined here, includes New England, the
Middle Atlantic states (excluding the New York City metropolitan
area), as well as Delaware, Maryland, and Washington, D.C. New
York City is excluded because residents cannot be tourists to the area.

Second, as an export industry, tourism tends to
benefit the local economy more than intraregional
commerce because of indirect “multiplier” effects.
Inflows of money from outside the region can generate
additional waves of economic activity—for example, a
hotel maid will use part of her earnings to go out to the
movies, or a restaurant will draw on its income to print
up menus. These multiplier effects are estimated to
equal about 37 percent of tourism spending (New York
Convention and Visitors Bureau [1993]).

6. In separate studies, the New York Convention and Visitors
Bureau and the Port Authority have estimated the size of the local
tourism industry by attributing specific shares of various industries
to tourism and aggregating those segments. The Bureau’s study
covers only the city proper, while the Port Authority’s study covers
the metropolitan area, which also includes twelve nearby counties.
Unfortunately, these measures are not tracked over time, nor are
they available nationwide or for other cities based on comparable

Third, tourism, though small, is growing. Between
1977 and 1994, 12 New York City employment grew
just 4 percent overall, but it rose by 35 percent in the
hotel industry and 26 percent in other tourist-related
sectors (restaurants and bars, amusement and recreation
services, and museums and galleries). The growth
potential of foreign tourism in particular is significant.

7. Clearly, these tourist-intensive industries service the local community as well as visitors. Moreover, other industries that are not
included (particularly clothing and other retailers) also service
tourists. Therefore, while employment and earnings can be used as
a crude proxy for the relative importance of tourism, it should not
be used as an estimate of the actual volume of tourism business.
8. Information on retail sales is drawn from the 1992 Census of
Retail Trade and 1992 Census of Service Industries. Specific
Standard Industrial Classification (SIC) codes include: eating and
drinking places (58); souvenir and related retailers (5943, 59455949); amusement and recreation services excluding movie production (783, 784, 79); and museums, zoos, and galleries (84).

Unlike the U.S. industry, which is dominated by
domestic travelers, New York City tourism benefits
greatly from foreign visitors. The strength of foreign
currencies led record numbers of overseas visitors to
New York City in 1994 and early 1995. The city’s ability to draw foreign visitors is a big plus because foreign
tourism is relatively immune to local recessions and
has the potential to grow rapidly in the years ahead.

9. Here, metropolitan areas refer to Primary Metropolitan
Statistical Areas (PMSAs) as defined by the Census Bureau. New
York City’s PMSA includes the city’s five boroughs as well as
Westchester, Rockland, and Putnam counties.




10. The Buffalo–Niagara Falls metropolitan area enjoys limited
benefits from Niagara Falls’ status as a tourist destination because
most of the attractions are in Canada. Still, while direct tourist
expenditures are evidently modest, tourism may have a significant
(but hard to measure) indirect effect on metropolitan Buffalo’s
11. A tourist is more likely to have friends or relatives in the New
York City metropolitan area because it is the most densely populated in the nation. According to the Port Authority’s 1992 study,
27 percent of both foreign and domestic tourists came to the New
York City area to visit friends and relatives.
12. This interval was selected because it begins and ends at similar
points in the business cycle: 1977 and 1994 were both years in
which the city was emerging from severe recession.

Bureau of the Census. 1994. 1992 Census of Service Industries.
Bureau of the Census. 1994. 1992 Census of Retail Trade.
Kamen, Robin. 1995. “Tourist Hotels Do First-Class Business.”
Crain’s New York Business, August 7.
New York Convention and Visitors Bureau. [1993]. Tourism’s
Economic Impact on New York City, 1992.
New York State Department of Labor. 1994. Employment Review,
Port Authority of New York and New Jersey. 1994. Destination
New York–New Jersey: Tourism and Travel to the Metropolitan
PKF Consulting. 1975-1995. Trends in the Hotel Industry, various

About the Author
Jason Bram is an economist in the Domestic Research Function of the Research and Market Analysis Group.
The views expressed in this article are those of the author and do not necessarily reflect the position of
the Federal Reserve Bank of New York or the Federal Reserve System.

The Federal Reserve Bank of New York provides no warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any information contained in documents produced
and provided by the Federal Reserve Bank of New York in any form or manner whatsoever.

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