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Statement by E. Gerald Corrigan, President, Federal Reserve Bank of New York, before the U.S. Committee on Banking, Housing, and Urban Affairs, U.S. Senate, March 10, 1993.

I am pleased to have this opportunity to discuss with you recent economic trends in the Second Federal Reserve District. In keeping with your request, my prepared remarks are very brief, but I have included with my statement a great deal of statistical and anecdotal information bearing on recent trends in the District.(1) These materials include (1) a comprehensive set of charts and tables on various indicators of economic conditions; (2) a digest of observations and comments made by the members of the Bank's Small Business and Agriculture Advisory Council at its most recent meeting, which was held on February 5, 1993, and (3) the results of the latest informal survey of ten large and fifteen smaller businesses regarding the economic outlook as seen by those firms.

Although the Second District is relatively small in geographic terms--representing, for example, only a small fraction of the land area of my former Federal Reserve home in the Minneapolis District--it is quite large and important in economic terms. For example, it is home for about 10 percent of the U.S. population, and it accounts for about 11 percent and 12 percent respectively of national GDP and personal income.

Like so much of the rest of the country, the past several years have been difficult for the District in economic and financial terms. Indeed, by many indicators, the period of subpar economic performance in the District probably began a little earlier, cut a little deeper, and lasted a little longer than is the case for the nation as a whole. Although it is difficult to generalize, the reasons for this probably center on disproportionately greater problems--either directly or indirectly--in several areas, including (1) commercial real estate overbuilding, (2) defense and aerospace cutbacks, (3) the cutbacks in employment in banking and finance, (4) corporate restructuring more generally, and (5) the slower growth of exports, especially to Europe.

Having said that, I believe it is fair to suggest--drawing on both statistical and anecdotal information--that the near-term outlook has improved, even if it remains true that certain structural elements will continue to exert a drag on the District economy for some time.

Although some of these lingering problems are very real, the fact remains that the District's economy is rich and diverse and has certain sources of underlying strength. For example, the State of New York produces a dramatically disproportionate number of the most scientifically talented high school seniors in the United States, accounting for 43 percent of those cited in the 1991 Westinghouse Talent Search and 35 percent of the outright winners in that competition. Another important source of its strength rests in its strong ties to the international community at large--ties that extend well beyond New York City's critical role as one of the most important, if not the most important, international financial center in the world. Here, too, the statistics tell quite an interesting and often overlooked story that includes the following features:

* In 1990, an astonishing 28 percent of all residents in New York City were foreign-born.

* Foreign-owned firms employ about a half million workers in the New York metropolitan area, which is the equivalent of about 25 percent of total employment in the greater Washington, D.C., metropolitan area.

* New York ranks third behind California and Texas in the value of goods exports and would probably be our largest exporting state if data on service exports were available on a state-by-state basis.

While the District as a whole has a broad and diverse economic base--including its strong international orientation--New York City has a very special place in the economy of the region, the District, the nation, and, indeed, the world. While the term "Big Apple" is widely cited, we sometimes forget just how big the apple really is. For example:

* If New York City were a stand-alone country, its economy--using conservative estimates--would rank twelfth among the nations of the world.

* Manhattan alone has more office space than the combined total of the next eight largest central business districts in the United States.

I cite these statistics not simply because they are so dramatic, but also because the recent period of weak economic performance has been even more pronounced in the city than in the District as a whole. While there are straws in the wind that suggest the economy of the city may at last be firming, the strains on the city's economic and social infrastructure growing out of this prolonged period of subpar economic performance have been quite serious. Despite this, the city, and the state, too, have done a commendable job in managing their fiscal affairs, but not without great difficulty. Moreover, the City's demographic profile is such that the burden associated with social, educational, and health care costs will remain a formidable problem for both the public and private sectors for as far as the eye can see.

In summary, the city, the state, and the District as a whole have--like much of the nation--gone through a difficult period. At present, most indicators point to improving conditions, but several more fundamental or structural factors will tend to moderate the process of recovery. Taking a somewhat longer view, I am quite confident that the underlying strength and diversity of the District economy will provide the framework for renewed vitality and growth--a process that will feed on itself as the structural overhangs of the past abate. (1.) The attachment to this statement is available from the Federal Reserve Bank of New York, New York, NY 10045.
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Title Annotation:Statements to the Congress
Publication:Federal Reserve Bulletin
Article Type:Transcript
Date:May 1, 1993
Words:917
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