Both New York’s and New Jersey’s economies remained sluggish through the fourth quarter of 2002. Through December 2002 total nonagricultural employment in New York State declined by 88,200 jobs, or approximately 1.0 percent, compared with employment levels of 1 year ago. This decline resulted primarily from employment losses that occurred in the New York City metropolitan area due to the residual effects of both the tragic events of September 11, 2001 and the decline in the stock market. In December 2002 Verizon Communications announced a layoff of 2,700 employees in New York and New Jersey, citing serious competition in the telecommunications industry. Downstate employment losses also continued in the service industries, including financial and securities firms, and in the tourism industry. Statewide, significant employment losses occurred in the construction and manufacturing sectors, but these losses were offset somewhat by gains in the service sector and increases in Federal and State employment.

On an annual average basis, total nonagricultural employment in New Jersey decreased by 14,600 jobs during 2002, representing a 0.4-percent loss from the employment level recorded 1 year ago. Between 2001 and 2002, annual average employment in the State declined in various sectors, including manufacturing, transportation and public utilities, and wholesale trade. Job losses in these sectors were offset partially by increased employment in services; finance, insurance, and real estate (FIRE); and the Government.

Immediately following September 11, 2001, many New York firms relocated operations to New Jersey, especially to Newark and Jersey City. This development alone bolstered New Jersey’s economy by approximately 13,000 jobs. Over the past year, more than half of these jobs were relocated back to New York State. FIRE employment in New Jersey remains significantly higher than before September 11, 2001, however, because many New York firms continue to retain back-office space outside of lower Manhattan.

In Upstate New York the economy remains stagnant and many areas continue to sustain employment losses. Through December 2002, the Binghamton, Buffalo-Niagara Falls, Elmira, Rochester, Syracuse, and Utica-Rome metropolitan areas all registered declines in employment levels ranging from 0.3 percent in the Utica-Rome area to 2.3 percent in the Binghamton area. In contrast, the Albany-Schenectady-Troy area recorded a slight increase in total nonagricultural employment during the same period.

For the 12-month period through December 2002, the unemployment rate in New York State was 5.9 percent, up from 4.9 percent a year ago. According to preliminary statistics obtained from the New Jersey Department of Labor, the annual average unemployment rate in New Jersey increased from 4.2 to 5.4 percent during this same period.

Vacancy rates for commercial office space in both New York and New Jersey continued to increase during 2002, resulting in pressure to offer incentives and reduce rent levels. Similarly, there has been a decline in demand for industrial and warehouse space in New Jersey. According to a study by the real estate firm Cushman & Wakefield, the vacancy rates in commercial office space in northern and central New Jersey were 17.1 and 21.7 percent, respectively.

Similarly the office market in New York City continues to show weakness. Crain’s New York Business reports that prices for office buildings are declining and buyers in the Manhattan market are becoming more cautious. To lower a projected city deficit of $4.8 billion in 2002, an 18.5-percent property tax increase was approved in late October. These increased real estate taxes are exacerbating problems for landlords of office buildings with vacancies because they have been unable to pass these costs on to tenants. In addition this market has further weakened as commercial insurance premiums in the city increased sharply after the September 11 attack on the World Trade Center.

Surprisingly, the retail market in New York City remains robust. Cushman & Wakefield reports that rents have reached a high of $700 per square foot in Midtown Manhattan’s most desirable locations, and average and median asking rents for retail space in most of Manhattan have been increasing. Conversely, Crain’s New York Business reports that the average price for a Manhattan hotel room is at a 7-year low of $137 per night, although occupancy has increased slightly over the past year.

Despite declines in economic activity, the for-sale housing market in many upstate housing market areas has remained surprisingly strong in part because of low mortgage interest rates. According to the Buffalo-Niagara Association of REALTORS^®, the average price of an existing single-family home in the Buffalo-Niagara Falls, New York, metropolitan area increased approximately 4 percent from $98,026 to $101,874 between 2001 and 2002. Price inflation is expected to continue into 2003 because of reductions in the inventory of homes available for sale. Through November 2002 the median sales price of an existing single-family home in the Rochester, New York, metropolitan area increased from $92,000 to almost $96,000, 4.3 percent more than the previous year. Year-to-date real estate closing activity increased 3.5 percent in the metropolitan area.

As of November 2002, 7,990 existing single-family sales were closed in the Capital District region of New York State. The median sales price increased by 7.8 percent from $116,000 to $125,000. Local sources indicate that reasonably priced homes are selling within days and sometimes attracting multiple offers in excess of the asking price.

New York City’s condominium and cooperative market slowed in the fourth quarter of 2002. In Manhattan sales of upper-middle-class housing priced above $500,000 have declined. Local estimates are that supply has continued to increase and that the time on the market has also increased. Even more weakness persists in the “luxury” market for condominiums and townhouses priced at $2.5 million and above.

Through December 2002 residential construction activity in the New York/New Jersey region increased by 8.5 percent from the levels of 1 year ago, and a total of 79,443 residential building permits were authorized in the region. Overall, single-family construction activity increased to 47,403 units. In 2002 single-family housing permit activity increased by 5.6 percent in New Jersey, and in New York State residential construction permits were up 10.4 percent to 49,398 units. Year-to-date multifamily housing development through December 2002 increased by 4,270 units, or approximately 15 percent, in the New York/New Jersey region.

According to statistics compiled by the New York State Association of REALTORS^®, sales of existing single-family homes declined from 6,973 to 6,376 units, or 9 percent, between November 2001 and 2002. However, the statewide median sales price of an existing single-family home increased from $145,750 to $180,000, or 24 percent.

Through the third quarter of 2002 sales of existing single-family homes in New Jersey increased by 7.5 percent above the volume for the comparable 9 months in 2001. The third-quarter median sales price of an existing single-family home increased by almost 17 percent to $261,600. Median sales prices ranged from $143,500 in the southern part of the State to $335,000 in Northern New Jersey.