An Update on Emerging Issues in Banking 

New York City's Economy Shows Early Signs of 

Stabilizing 

May 23, 2002 

Summary

The September 11, 2001 attack on the World Trade Center severely 

shocked the New York City economy. The magnitude of the shock pushed 

the City's slowing economy into a recession, resulting in employment 

declines that were greater than the national average. Recent economic data 

indicate, however, that while the City has suffered major trauma, the 

economy now may be beginning to stabilize. Many residents and businesses 

have returned to Lower Manhattan, and the rate of job decline appears to 

have eased through April 2002.1 The site cleanup is virtually complete, and 

plans to fully restore and upgrade transportation systems to Lower 

Manhattan will contribute to the area's recovery. Nonetheless, the City's 

economy faces significant challenges, largely related to a weakened 

financial services sector and the long process ahead to rebuild Lower 

Manhattan. 

D

Prior to September 11, 2001, the New York City's economy, although slowing, 

was outperforming the nation. After declining to near zero growth in the 

second quarter of 2001, the City's economy contracted sharply following 

September 11.2 The World Trade Center attack destroyed offices, damaged 

consumer and business confidence, and resulted in closing the stock 

exchange for four days. The City's gross metro product decreased at an 
annual rate of approximately 15 percent in the third quarter of 2001, compared 

with a 1.3 percent annual rate of decline in the nation's Gross Domestic 

Product, or GDP (see Chart 1). Employment declines have been deep and 

widespread over the past eight months, with some of the most significant 

declines in the finance, insurance, and real estate (FIRE) sector, a key driver 

of the City's economy (see Chart 2).3 Job declines in the City's financial sector 

have been more severe than in other parts of the country because of a greater 

reliance on investment banking and equity-related activities which have been 

adversely affected by the difficulties of the U.S. corporate sector. 

D

Outlook for New York City Economy and Insured Institutions

Most analysts expect a slower and weaker economic recovery for New York 

City than for the nation. The New York City Office of Management and 

Budget and the New York City Comptroller's Office forecast that the City 

may have to wait until 2005 or 2006 to regain 2000 employment levels.4 The 

timing and strength of a rebound in the FIRE sector will play an important role 

in the City's near-term outlook. The FIRE sector accounts for approximately 13 

percent of the City's workforce but 30 percent of annual earnings, primarily 

wages and salaries.5 Despite $20 billion in federal assistance for the 

reconstruction of Downtown Manhattan, the potential for a lackluster recovery 

in the financial markets is expected to dampen the City's immediate economic 

prospects. Nevertheless, recent employment data suggest that the rate of job 

loss in the City's business services, tourism, travel-related services and FIRE 

sectors has decelerated.6

The long-term outlook for New York City depends on the restoration of 

services and amenities, and the return of confidence, which are essential for 

Lower Manhattan's future business competitiveness. Quality of life 

improvements in the 1990s and a reputation that attracts domestic and 
international talent support New York City's economic vitality. Eight months 

after the attack businesses, residents, and visitors are returning to Lower 

Manhattan and the cleanup of Ground Zero has been virtually completed. 

Equally important, a redevelopment plan for Lower Manhattan is being 

debated and will take time for all parties to agree on how to proceed. 

Reconstruction investment would be expected to make a significant 

contribution to the New York economy once underway. 

Despite significant economic weakening in New York City during the past year, 

credit quality deterioration reported by insured institutions headquartered in the 

area tracked national and regional trends.7 During 2001, the median percent of 

past due loans reported by the 86 local and regional banks in the New York 

metropolitan area increased from 1.14 percent to 1.58 percent.8 In the months 

following the attack, bankers in the New York City area remained optimistic 

about economic recovery in the second half of 2002, according to a survey 

conducted by the American Bankers Association (ABA). 9 Nonetheless, 

credit quality is typically a lagging indicator. Because the recession affected 

New York City later than other parts of the nation and the City's economic 

recovery is expected to lag the nation, credit quality among the City's insured 

institutions could weaken further relative to banks in other metropolitan areas. 

For the full Bank Trends report, entitled "The New York City Economy: Post 

9/11," go to: 

http://www.fdic.gov/bank/analytical/bank/index.html

1 April 2002 employment data subject to revision. 

2 The area refers to the New York City Primary Metropolitan Statistical Area (PMSA), which includes the 

Bronx, Brooklyn, Manhattan, Queens, Staten Island, Putnam, Rockland, and Westchester Counties. 

3 For the purposes of this article the financial services industry includes securities firms, commercial banks, 

insurance companies, and real estate businesses. 

4 New York City Office of Management and Budget (OMB), The City of New York Executive Budget Fiscal 

Year 2003: Message of the Mayor, April 17, 2002. Office of the New York City Comptroller. The Comptroller's 

Comments on the Economic Assumptions Underlying the Executive Budget for Fiscal Year 2003. A separate 

analysis by DRI-WEFA, an economic forecasting and consulting company, indicates that the New York City 

PMSA may recover approximately a year faster than OMB or the City Comptroller estimates. 

5 Source: Report by the Federal Reserve Bank of New York to Congresswoman Carolyn Maloney. April 18, 

2002. 

6 Leslie Eaton. "Did Somebody Say Recovery? (Shhh.)" New York Times. May 19, 2002. Note: April 2002 

employment numbers are subject to revision. 

7 For purposes of this report, insured institutions with total assets greater than $30 billion and credit card

banks are excluded because the operations of these banks extend much beyond the New York metropolitan 

area. 

8 Past due loans are defined as loans more than 30 days past due or loans in non-accrual status. 

9 American Bankers Association. "Post Sept.11 Survey Shows Nation's Bankers Are Optimistic," ABA Press 

Release, December 3, 2001. 

Last Updated 05/23/2002 
Chart 1

After a Strong 2000, 9/11 Shocked NYC's Economic Growth in Third Quarter 2001

Annualized Percentage Change in Real Gross Product

Year and Quarter US New York City

2000:Q1 2.35 10.90

2000:Q2 5.69 10.74

2000:Q3 1.34 4.70

2000:Q4 1.91 6.89

2001:Q1 1.32 0.88

2001:Q2 0.31 0.14

2001:Q3 -1.33 -15.16

2001:Q4 1.65 0.12

Source: National Income and Product Accounts, Economy.Com.

Note: NYC data are Economy.com's May 2002 estimates for the PMSA, which includes the Bronx, Kings 

(Brooklyn), Manhattan, Queens, Richmond (Staten Island), Putnam, Rockland and Westchester Counties
Chart 2

FIRE-Sector Employment Declines Have Been More Severe in New York City than the Nation

Total Employment in Finance, Insurance and Real Estate Services (FIRE)

Percent Change from A Year Ago

Month and Year U.S. Total, Excluding New York City New York City

Jan-96 0.4 -2.2

Feb-96 0.8 -1.5

Mar-96 0.8 -1.5

Apr-96 1.2 -1.5

May-96 1.7 -1.0

Jun-96 1.8 -0.9

Jul-96 2.1 -0.8

Aug-96 2.2 -0.4

Sep-96 2.3 -1.0

Oct-96 2.4 -0.8

Nov-96 2.5 -0.4

Dec-96 2.5 -0.2

Jan-97 2.7 0.0

Feb-97 2.7 -0.6

Mar-97 2.7 0.0

Apr-97 2.9 0.5

May-97 2.9 0.3

Jun-97 2.8 0.8

Jul-97 2.9 1.3

Aug-97 2.9 1.5

Sep-97 3.0 1.8

Oct-97 3.4 2.2

Nov-97 3.4 2.2

Dec-97 3.6 2.2

Jan-98 3.7 2.9

Feb-98 3.9 2.5

Mar-98 4.2 2.2

Apr-98 4.2 2.2

May-98 4.2 2.4

Jun-98 4.3 2.3

Jul-98 4.3 2.6

Aug-98 4.0 2.4
Sep

-98 4.1 2.1

Oct-98 4.0 1.5

Nov-98 4.0 1.4

Dec-98 3.8 1.0

Jan-99 3.7 2.0

Feb-99 3.5 1.9

Mar-99 3.1 1.6

Apr-99 2.9 1.0

May-99 2.7 0.8

Jun-99 2.5 0.3

Jul-99 2.3-0.4

Aug-99 2.2-0.5

Sep-99 1.8-0.7

Oct-99 1.5 0.1

Nov-99 1.3 0.1

Dec-99 1.2 0.4

Jan-00 0.8-0.1

Feb-00 0.8 0.2

Mar-00 0.6 0.3

Apr-00 0.1 0.7

May-00-0.1 0.5

Jun-00-0.4 1.2

Jul-00-0.7 1.2

Aug-00-0.5 1.1

Sep-00-0.3 1.8

Oct-00-0.2 2.0

Nov-00-0.1 1.9

Dec-00-0.1 2.0

Jan-01 0.3 1.3

Feb-01 0.4 0.7

Mar-01 0.7 1.0

Apr-01 0.9 1.1

May-01 1.3 0.9

Jun-01 1.2 0.5

Jul-01 1.2 0.3

Aug-01 1.1 0.2

Sep-01 1.0 0.2

Oct-01 1.3-5.4
Nov-01 1.2 -5.1

Dec-01 1.1 -6.1

Jan-02 1.1 -6.3

Feb-02 0.7 -6.5

Mar-02 0.5 -6.9

Apr-02 0.6 -6.5

Source: Bureau of Labor Statistics.