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Regional Economic Press Briefing November 29, 2012 The views expressed here are those of the presenters and do not necessarily represent the views of the Federal Reserve Bank of New York or the Federal Reserve System. Regional Economic Conditions Jason Bram, Senior Economist Overview • • • Overview of the regional economy before Sandy New York City on a solid growth trajectory New Jersey still sluggish Long Island & upstate New York flat Puerto Rico still bottoming out, no signs of recovery yet Breaking down the costs of Sandy Physical damage (homes, property, infrastructure, etc.) Loss of economic activity (due to power, transportation outages) Welfare costs (pain & suffering, quality of life, lost leisure time, etc.) Bottom line Short-run disruptions substantial and widespread across NYC metro region Hard-hit communities, individuals, businesses face long road to recovery Regional economy overall likely to bounce back quickly FEDERAL RESERVE BANK OF NEW YORK 2 Regional Economic Activity Index of Coincident Economic Indicators (CEI) 106 Index (December 2007 = 100) Oct 104 May05 102 Apr08 Apr08 100 Jan08 98 96 New York City 94 Oct09 New Jersey New York State 92 90 Nov10 Nov09 Puerto Rico 88 86 84 Jan07 Last Briefing (April) Shading indicates NBER recession Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Source: Federal Reserve Bank of New York; Puerto Rico Government Development Bank. Note: The Puerto Rico composite index is based on a different methodology than the indexes produced by the FRBNY. Jul12 3 Total Employment Seasonally Adjusted Index 104 Index (December 2007 = 100) 102 100 New York City New York State 98 96 Oct United States 94 New Jersey 92 Puerto Rico 90 88 Jan07 Last Briefing (April) Shading indicates NBER recession Jul07 Jan08 Jul08 Jan09 Source: Bureau of Labor Statistics and Moody’s Economy.com. Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 4 Total Employment Seasonally Adjusted Index 104 Index (December 2007 = 100) 102 100 New York City Upstate NY 98 Oct Long Island 96 United States 94 92 90 88 Jan07 Last Briefing (April) Shading indicates NBER recession Jul07 Jan08 Jul08 Jan09 Source: Bureau of Labor Statistics and Moody’s Economy.com. Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 5 Regional Unemployment Rates Seasonally Adjusted Rates 11% New York City 10% United States New Jersey 9.7% 9.3% 9% 8.7% New York State 8% 7.9% Oct 7% 6% 5% 4% 3% 2% 1% 0% Jan07 Last Briefing (April) Shading indicates NBER recession Jul07 Jan08 Jul08 Jan09 Source: Bureau of Labor Statistics and Moody’s Economy.com. Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 6 Assessing the Aftermath of Sandy Scope of Physical Damage • Residential real estate & property: Largely in flood-prone areas Scattered wind-related damage across the region • Commercial real estate & property: Flooding of office buildings (NYC) and retailers along coastlines Damaged or destroyed equipment (e.g., computers, vehicles) • Infrastructure: Mass Transit: subways, PATH, NJ Transit Rail, LIRR, Metro North, Amtrak Power Infrastructure: power lines, transformers & other equipment Other Public Infrastructure: roads, bridges, tunnels, water & sewer systems, beaches, boardwalks, airports, seaport, schools, hospitals, etc. FEDERAL RESERVE BANK OF NEW YORK 8 Impact on Economic Activity • Short-term effects: + Pre-storm increase in activity: consumers stocking up - Disruptions: transportation, power, water, schools, etc. + Offsets to activity decline: postponed or shifted within region + Recovery of activity: rebuilding, repair, replacement • Each full-day equivalent of lost regional output $3.8 billion Represents roughly 1.1% of quarterly regional GDP Knocks roughly 0.4% off quarterly U.S. GDP growth (annual rate) • Long-term effects: Research suggests little long-run effect on GDP However, local consequences (population and activity relocations) may be persistent FEDERAL RESERVE BANK OF NEW YORK 9 Empire State Manufacturing Survey • Headline index little changed in November; employment index down Roughly 70% of respondent pool is in upstate NY Response patterns were not much different for upstate vs. downstate firms • Supplemental questions on Sandy: major disruptions to downstate NY firms Most upstate manufacturers saw no reduction in business activity Every downstate respondent reported some reduction in activity Over 90% of downstate firms shut down or severely crippled for at least a day • ─ 40% reported shut down or severely crippled for at least 5 days Biggest contributing factors to reduced business ─ Downstate: Loss of power, loss of communications, workers unable to get in ─ Upstate: Customers affected, supply chain disruptions Making up for lost output is harder for service firms than for manufacturers FEDERAL RESERVE BANK OF NEW YORK 10 Weekly Initial Jobless Claims Seasonally Adjusted 80,000 70,000 60,000 50,000 +45,000 40,000 New York State 30,000 20,000 +28,000 New Jersey 10,000 Nov 10 0 Jan10 Apr10 Jul10 Oct10 Jan11 Source: Bureau of Labor Statistics and Haver Analytics. Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 Oct12 11 Employment Trends Before and After Previous Disasters 115 Index (Disaster Date = 100) Hurricane Andrew Miami-Dade County 110 105 9-11 Attacks New York City Northridge Earthquake Los Angeles County 100 95 New York City employment back in line with existing trend 90 Hurricane Katrina New Orleans Metro Area 85 80 75 Quarters Before Disaster 70 -4 -3 -2 Quarters After Disaster -1 0 1 2 3 4 5 6 Source: Bureau of Labor Statistics and Moody’s Economy.com. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 12 Wage and Salary Income Trends Before and After Previous Disasters 140 Index (Disaster Date = 100) 130 Hurricane Andrew Miami-Dade County 120 110 Northridge Earthquake Los Angeles County 100 9-11 Attacks New York City Hurricane Katrina New Orleans Metro Area 90 80 Quarters Before Disaster -8 -7 -6 -5 -4 -3 -2 -1 Quarters After Disaster 0 1 2 3 4 5 Source: Bureau of Labor Statistics (QCEW) and Moody’s Economy.com. Note: Income data was smoothed using a four-quarter moving average. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 13 Welfare Costs • • • • Impact on quality of life often not included in loss estimates Loss of life Pain & suffering, quality of life, lost leisure time, etc. Grief and stress associated with loss of homes, personal valuables Days/weeks spent without power, heat, water School children relocated to other schools Additional time spent commuting, traveling Often difficult to quantify—total cost likely in the billions Examples: ─ 3 million commuters x 10 extra hours x $20/hour = $600 M ─ 3 million homes without power x $500 value to avoid power loss = $1.5 B ─ Waiting in gas lines, inability to communicate, etc. FEDERAL RESERVE BANK OF NEW YORK 14 Impacts of Hurricane Sandy on Schools and Students New York City Schools Public School Closures: Nov. 5 All public schools closed first week, most reopened on Nov. 5 87 still closed as of Nov. 5 Closed Reopened Nov 5 Source: New York City Department of Education 16 New York City Schools Public School Relocated and Reopened: Nov. 8 44 schools still displaced as of Nov. 8; students re-located to other schools 23 schools still displaced as of Nov. 16 Closed Reopened Relocated Nov 8 Source: New York City Department of Education 17 New York City Schools Public School Attendance: Nov 8 0% to 35% 35% to 70% 70% to 85% 86% to 100% Nov 8 Source: New York City Department of Education 18 School Closures Outside NYC • New Jersey: Roughly 60% of 2,400 schools still closed on November 7 700 still without power on November 7 NJ relatively slow in coming back—18% still closed on November 9 • Long Island: Most schools closed for full week, and more than 100 schools require repairs due to Sandy damage FEDERAL RESERVE BANK OF NEW YORK 19 Potential Educational Impacts • Research shows loss of school days leads to adverse effects on student learning Of particular importance, an agreement allows students to make up three and a half days of lost time • Psychological effects • Relocations of families disrupt education • Closed schools can substantially disrupt parents’ work and other schedules FEDERAL RESERVE BANK OF NEW YORK 20 Summary • • • Breaking down the costs of Sandy Physical damage (homes, property, infrastructure, etc.) Loss of economic activity (due to power, transportation outages) Welfare costs (pain & suffering, quality of life, lost leisure time, etc.) ─ Most schools shut down for days; some for substantially longer Bottom line Short-run disruptions substantial and widespread across tri-state region Hard-hit communities, individuals, businesses face long road to recovery Regional economy overall expected to be back on track by early 2013 Looking ahead It takes time, but devastated communities typically recover from disasters How can we mitigate impacts of future disasters? FEDERAL RESERVE BANK OF NEW YORK 21 Intelligence From the Hardest Hit Areas Claire Kramer, Officer, Regional Outreach Overview • Outreach Team • Gathers intelligence about emerging local issues, economic problems, and financial concerns from the ground up Identifies knowledge gaps for which the FRBNY is uniquely suited to address and produce actionable analysis Ongoing relationships with community organizations, business groups, and government agencies throughout the region Sandy-Related Conversations Contacted 40+ service organizations operating in the hardest hit areas of the region Organizations include local, state, and federal housing and business agencies; chambers of commerce; and economic development authorities Focus on small business and housing market conditions FEDERAL RESERVE BANK OF NEW YORK 23 Small Business Recovery • Access to Credit is Top of Mind Collateral losses limit ability to obtain loans/lines of credit High demand for SBA loans at favorable terms Gap financing needed for short-term cash flow while firms restart operations and wait for SBA and insurance settlements ─ Local loan programs filling short-term financing needs—up to $25k. Examples include NYC Department of Small Business Services, NY Bankers Association and NY Business Development Corp, and Hudson County Economic Development Corporation FEDERAL RESERVE BANK OF NEW YORK 24 Small Business Recovery • Insurance Coverage Won’t Make Firms Whole Companies lacked flood insurance ─ Major storm damage due to salt water Business disruption insurance policies may not cover damage due to water, wind, or power outages ─ Many firms hold such policies, especially service industry firms Demand for adjusters is greater than capacity ─ Insurance companies have set up mobile claims operations in heavily affected areas FEDERAL RESERVE BANK OF NEW YORK 25 Small Business Recovery • Business Trade Groups are Engines of Recovery Businesses located in areas with active business organizations are faring better than those in areas without such infrastructure Service organizations in affected areas also sidelined by the storm but used websites and social media to communicate with members while operations were closed Self-help cooperatives among business owners have sprung up to share resources and space FEDERAL RESERVE BANK OF NEW YORK 26 Small Business Recovery • Business Owners Facing Key Decisions Investment: Firms on waterfront discussing getting big generator systems—but logistical problems remain (i.e. where to locate generators). Renters with short-term leases hesitant to take out loans to renovate spaces they may not be able to retain Relocation: Sandy is prompting relocation discussions. New Jersey or upstate New York where (higher ground) land is cheaper are in consideration, especially for waterfront firms Closing Shop: Business owners close to retirement age are considering not reopening at all FEDERAL RESERVE BANK OF NEW YORK 27 Housing Recovery • Shelter is Top Priority For Federal, State, and Local Authorities Estimated 40,000 New York City residents need shelter—likely to be low estimate ─ Housing service providers report that most families who lacked power, heat, or hot water, but whose homes did not suffer structural damage, preferred to brave elements ─ Many public housing tenants refused to evacuate or relocate out of fear that a Katrina-like condemnation might take place FEDERAL RESERVE BANK OF NEW YORK 28 Housing Recovery • Counseling and Service Resources Available State Housing Task forces formed to identify housing priorities, catalog vacant rental housing units, and investigate temporary housing options Housing counseling and service providers aggressively marketing emergency loan programs—examples are Neighborhood Housing Services of NYC and Asian Americans for Equality—in hard hit neighborhoods Over longer term, Center for NYC Neighborhoods will deploy resources to support housing counseling and legal services for homeowners filing insurance and FEMA claims and seeking assistance from mortgage providers FEDERAL RESERVE BANK OF NEW YORK 29 Housing Conditions in the Region Jaison Abel, Senior Economist Overview of Regional Housing Conditions • Many of the region’s housing markets have begun to recover Home prices reached a bottom in late 2011 Home sales and building activity have stabilized • Signs of housing-related stress have eased somewhat Negative equity share has edged down remains below national levels Fewer homeowners are becoming delinquent on their mortgages • Challenges remain going forward The hardest hit places in the region continue to struggle A large and growing backlog of foreclosures exists in the region FEDERAL RESERVE BANK OF NEW YORK 31 The Geography of the Housing Bust Change in Home Prices, March 2006 – April 2009 Decline more than U.S. Decline less than U.S. Increase Source: CoreLogic Home Price Index (including distressed sales). 32 Measures of Housing Activity Regional Home Prices CoreLogic Single-Family Home Price Index, Seasonally Adjusted 110 Index (U.S. Peak of March 2006 = 100) “Bust” “Continued Decline” “Recent” 105 4.1% 100 Upstate NY 95 90 Downstate NY 85 80 2.3% Northern NJ 75 1.3% Sep 6.2% United States 70 Percent Change Dec11-Sep12 65 Shading indicates NBER recession Apr09 Dec11 60 Mar06 Sep06 Mar07 Sep07 Mar08 Sep08 Mar09 Sep09 Mar10 Sep10 Mar11 Sep11 Mar12 Sep12 Source: CoreLogic Home Price Index (including distressed sales); Aggregation and seasonal adjustment by FRBNY staff. 34 Home Price Changes in the Region CoreLogic Single-Family Home Price Index, Dec11 - Sep12 Glens Falls Utica Rochester Syracuse Albany Buffalo Ithaca Elmira Binghamton United States = 6.2% 0% or Less 0% to 3% 3% to 6.2% 6.2% or More Source: CoreLogic Home Price Index (including distressed sales); Seasonal adjustment by FRBNY staff. Kingston Fairfield NYC Newark Edison NYC 35 Regional Home Sales Index of Single-Family Repeat Sales, Four-Quarter Moving Average 110 Index (2006Q1 = 100) 100 90 80 Upstate NY 70 60 United States 50 40 Q2 Downstate NY Northern NJ 30 20 2006 Source: CoreLogic. Note: Data trimmed to Q2. Shading indicates NBER recession 2007 2008 2009 2010 2011 2012 36 Regional Home Building Activity Index of Total Residential Home Permits, Four-Quarter Moving Average 110 Indexed to U.S. Peak (2006Q1 = 100) 100 Dotted line smoothes fluctuations caused by regulatory change in NYC 90 80 70 60 Upstate NY 50 Northern NJ 40 Q3 Downstate NY 30 United States 20 10 2006 Shading indicates NBER recession 2007 2008 Source: U.S. Census Bureau and Moody’s Economy.com. 2009 2010 2011 2012 37 Mortgage Originations by Credit Score Share of First Mortgages 90% 80% 70% 60% Q3 50% NY-NNJ Region 760 or More 40% 30% United States 760 or More 20% 10% 0% 2000 Shading indicates NBER recessions 2001 2002 2003 Source: FRBNY Consumer Credit Panel/Equifax. 2004 2005 2006 2007 2008 2009 2010 2011 2012 38 Measures of Housing Stress Negative Equity Share of Mortgages with Amount Owed Greater Than Home Value 70% 2011Q4 2012Q2 65% 60% 59% 51% 50% 47% 43% 40% 40% 32% 30% 25% 20% 29% 20% 22% 18% 10% 8% 8% 0% United States New York New Jersey Nevada Source: CoreLogic Negative Equity Report (with revised historical data). California Florida Arizona 40 Pipeline of New Delinquencies Share of Mortgages Entering Severe Delinquency (90+ Days) Since Previous Month 0.9% 0.8% United States 0.7% Downstate NY 0.6% Northern NJ 0.5% 0.4% Aug Upstate NY 0.3% 0.2% 0.1% 0.0% 2005 Shading indicates NBER recession 2006 2007 2008 2009 2010 2011 2012 Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012. 41 Backlog of Foreclosures Share of Mortgages in Foreclosure 9% 8% Northern NJ 7% 6% Downstate NY 5% United States 4% Aug 3% Upstate NY 2% 1% 0% 2005 Shading indicates NBER recession 2006 2007 2008 2009 2010 2011 2012 Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012. 42 Average Number of Days in Foreclosure 2010 to 2012Q2 600 Days 500 516 503 481 400 300 318 312 236 200 230 100 Judicial Judicial New York New Jersey Judicial 0 United States Source: CoreLogic. Nevada California Arizona Florida 43 Geography of Regional Housing Stress Percent of Mortgages in Foreclosure Glens Falls Utica Rochester Syracuse Buffalo Ithaca Elmira Binghamton 5% or Less 5% to 7.5% 7.5% to 10% 10% or More Albany Kingston Fairfield New York City Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012. Newark Edison 44 Summary • Like the nation, housing conditions in the region have shown steady signs of improvement Home prices have generally increased throughout the year Other measures of housing-related activity have stabilized Indicators of housing-related stress have eased somewhat • However, many of the hardest hit places in the region continue to struggle Housing stress is concentrated in northern New Jersey, parts of the Hudson Valley, and Long Island • Going forward, a large and growing backlog of foreclosures presents a challenge to broadening and strengthening the region’s housing recovery FEDERAL RESERVE BANK OF NEW YORK 45 Potential Impacts of Sandy • A large number of homes were damaged or destroyed by Sandy, particularly along the coasts of NY, NJ, and CT NY: +300,000 (~4% of housing stock) NJ: +70,000 (~2% of housing stock) • • No doubt, rebuilding will be difficult and costly Research indicates that housing markets impacted by severe storms see a temporary dip in home prices and sales activity followed by a rebound If enough homes are destroyed, prices may increase immediately • Longer run questions following Superstorm Sandy: Will demand for coastal properties fall? Will costs of homeownership increase? FEDERAL RESERVE BANK OF NEW YORK 46 Appendix New York City Schools Public School Reopening 100 90 Open Relocated Closed 87 80 70 59 60 50 44 40 39 37 30 40 63 62 43 28 27 25 23 24 20 10 0 4 0 4 0 Nov5 0 Nov7 Source: New York City Department of Education Nov8 Nov9 Nov13 0 Nov14 0 Nov15 48 New York City Schools Public School Attendance 100 Relocated Reopened Unaffected Total 90 80 70 60 50 40 30 20 10 0 Nov8 Nov9 Source: New York City Department of Education Nov13 Nov14 Nov15 49 Recent Regional Home Price Appreciation CoreLogic Single-Family Home Price Index, December-September Ithaca Binghamton Glens Falls Kingston Elmira United States Buffalo Syracuse Greater NYC Albany Rochester Bridgeport Utica Newark Long Island Bergen Hudson Passaic Warren Cnty NJ Edison -1.3% 9.6% 9.0% 8.5% 7.9% 6.4% 6.2% 4.9% 4.0% 3.5% 3.3% 2.8% 2.7% 2.7% 2.0% 1.4% 1.2% 1.1% 0.2% Poughkeepsie Source: CoreLogic Home Price Index (including distressed sales); Seasonal adjustment by FRBNY staff. 50 Geography of Regional Housing Stress Percent of Mortgages Delinquent 90+ Days Glens Falls Utica Rochester Syracuse Buffalo Ithaca Elmira Binghamton 3% or Less 3% to 4% 4% to 5% 5% or More Albany Kingston Fairfield New York City Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012. Newark Edison 51 Areas Included in Aggregate Regions Upstate NY, Downstate NY, and Northern NJ Upstate NY Northern NJ Downstate NY 52