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)
106 104 May05 102 100 Jan08 98 96 94 92 90 88 86 84 Jan07
Shading indicates NBER recession

Index (December 2007 = 100)
Oct

Apr08 Apr08

New York City
Oct09

New Jersey
Nov10

New York State
Nov09

Puerto Rico
Last Briefing (April)

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Jan12

Jul12 3

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.

Total Employment
Seasonally Adjusted Index
104 Index (December 2007 = 100)

102

100

New York City
98

New York State United States New Jersey

Oct

96

94

92

Puerto Rico
90
Shading indicates NBER recession Last Briefing (April)

88 Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Jan12

Jul12 4

Source: Bureau of Labor Statistics and Moody’s Economy.com.

Total Employment
Seasonally Adjusted Index
104 Index (December 2007 = 100)

102

100

New York City
98

Upstate NY Long Island
Oct

96

United States

94

92

90
Shading indicates NBER recession Last Briefing (April)

88 Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Jan12

Jul12 5

Source: Bureau of Labor Statistics and Moody’s Economy.com.

Regional Unemployment Rates
Seasonally Adjusted Rates
11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan07
Shading indicates NBER recession Last Briefing (April)

New York City

United States

New Jersey

9.7% 9.3% 8.7%

New York State

7.9% Oct

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

Jan12

Jul12 6

Source: Bureau of Labor Statistics and Moody’s Economy.com.

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.
8

FEDERAL RESERVE BANK OF NEW YORK

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

• •

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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
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Weekly Initial Jobless Claims
Seasonally Adjusted
80,000

70,000

60,000

50,000 +45,000 40,000

30,000

New York State

20,000

New Jersey
10,000

+28,000

Nov 10

0 Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Oct11

Jan12

Apr12

Jul12

Oct12 11

Source: Bureau of Labor Statistics and Haver Analytics.

Employment Trends
Before and After Previous Disasters
115 110 105 100 95 90 85 80 75 70 -4
New York City employment back in line with existing trend

Index (Disaster Date = 100)

Hurricane Andrew Miami-Dade County 9-11 Attacks New York City Northridge Earthquake Los Angeles County

Hurricane Katrina New Orleans Metro Area

Quarters Before Disaster -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Quarters After Disaster 10 11 12 13 14 15 16 17 18 19 20 21 22 12

Source: Bureau of Labor Statistics and Moody’s Economy.com.

Wage and Salary Income Trends
Before and After Previous Disasters
140 Index (Disaster Date = 100)

130

120

Hurricane Andrew Miami-Dade County

110

Northridge Earthquake Los Angeles County
100

9-11 Attacks New York City
90 Quarters Before Disaster -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8

Hurricane Katrina New Orleans Metro Area
Quarters After Disaster 9 10 11 12 13 14 15 16 17 18 19 20 21 13

80

Source: Bureau of Labor Statistics (QCEW) and Moody’s Economy.com. Note: Income data was smoothed using a four-quarter moving average.

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

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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

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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

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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

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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

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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

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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

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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

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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

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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
29

FEDERAL RESERVE BANK OF NEW YORK

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

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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
110 105 100 95 90 85 80 75 70 65
Shading indicates NBER recession Apr09

Index (U.S. Peak of March 2006 = 100)

“Bust”

“Continued Decline”

“Recent”
4.1%

Upstate NY

Downstate NY
2.3%

Northern NJ United States

1.3% Sep 6.2%
Percent Change Dec11-Sep12
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 Buffalo Ithaca Elmira Binghamton Kingston Syracuse Albany

United States = 6.2% 0% or Less 0% to 3% 3% to 6.2% 6.2% or More

Fairfield NYC Newark Edison NYC

Source: CoreLogic Home Price Index (including distressed sales); Seasonal adjustment by FRBNY staff.

35

Regional Home Sales
Index of Single-Family Repeat Sales, Four-Quarter Moving Average
110 100 90 80 70 60 50 40 30 20 2006
Source: CoreLogic. Note: Data trimmed to Q2. Shading indicates NBER recession

Index (2006Q1 = 100)

Upstate NY

United States
Q2

Downstate NY Northern NJ
2008 2009 2010 2011 2012 36

2007

Regional Home Building Activity
Index of Total Residential Home Permits, Four-Quarter Moving Average
110 100 90 80 70 60 Indexed to U.S. Peak (2006Q1 = 100)

Dotted line smoothes fluctuations caused by regulatory change in NYC

Upstate NY
50 40 30 20 10 2006
Shading indicates NBER recession

Northern NJ Downstate NY United States
Q3

2007

2008

2009

2010

2011

2012 37

Source: U.S. Census Bureau and Moody’s Economy.com.

Mortgage Originations by Credit Score
Share of First Mortgages
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000
Shading indicates NBER recessions

Q3

NY-NNJ Region 760 or More

United States 760 or More

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012 38

Source: FRBNY Consumer Credit Panel/Equifax.

Measures of Housing Stress

Negative Equity
Share of Mortgages with Amount Owed Greater Than Home Value
70%

2011Q4 2012Q2
60% 59%

65%

51%

50%

47%

40%
32%

43% 40%

30%
25%

29%
20%

20%

22% 18%

10% 8% 0%

8%

United States

New York

New Jersey

Nevada

California

Florida

Arizona
40

Source: CoreLogic Negative Equity Report (with revised historical data).

Pipeline of New Delinquencies
Share of Mortgages Entering Severe Delinquency (90+ Days) Since Previous Month
0.9% 0.8%

United States
0.7% 0.6% 0.5% 0.4% Aug 0.3% 0.2% 0.1% 0.0% 2005
Shading indicates NBER recession

Downstate NY Northern NJ

Upstate NY

2006

2007

2008

2009

2010

2011

2012 41

Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012.

Backlog of Foreclosures
Share of Mortgages in Foreclosure
9% 8% 7% 6%

Northern NJ

Downstate NY
5% 4% 3% 2% 1% 0% 2005
Shading indicates NBER recession

United States
Aug

Upstate NY

2006

2007

2008

2009

2010

2011

2012 42

Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012.

Average Number of Days in Foreclosure
2010 to 2012Q2
600 Days

500

503 481

516

400

300

318

312

200

236

230

100

Judicial 0

Judicial

Judicial

United States
Source: CoreLogic.

New York

New Jersey

Nevada

California

Arizona

Florida
43

Geography of Regional Housing Stress
Percent of Mortgages in Foreclosure

Glens Falls Rochester Buffalo Utica Syracuse Albany

Ithaca Elmira Binghamton Kingston

5% or Less 5% to 7.5% 7.5% to 10% 10% or More

New York City
Newark Edison

Fairfield

Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012.

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
45

FEDERAL RESERVE BANK OF NEW YORK

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 80 70 60 50 40 30 23 20 10 0 0 0 Nov5 Nov7 Nov8 Nov9 Nov13 37 27 39 59 62 63 87

Open Relocated Closed

44 40

43

28

25

24

4

4 0 Nov14 0 Nov15 48 0

Source: New York City Department of Education

New York City Schools
Public School Attendance
100

Relocated
90 80 70 60 50 40 30 20 10 0 Nov8

Reopened

Unaffected

Total

Nov9

Nov13

Nov14

Nov15 49

Source: New York City Department of Education

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 Rochester Buffalo Utica Syracuse Albany

Ithaca Elmira Binghamton Kingston

3% or Less 3% to 4% 4% to 5% 5% or More

New York City
Newark Edison

Fairfield

Source: CoreLogic LoanPerformance (LP) and Lender Processing Services Mortgage Performance data (LPS) as of Sep 1, 2012.

51

Areas Included in Aggregate Regions
Upstate NY, Downstate NY, and Northern NJ

Upstate NY

Northern NJ

Downstate NY

52

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