Understanding Economic Conditions
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UNDERSTANDING ECONOMIC CONDITIONS Daniel Turner 34 S. 4th Avenue Highland Park, NJ 08904 [email protected] UNDERSTANDING ECONOMIC CONDITIONS 1 PART ONE: CHARACTERISTICS OF THE LOCAL ECONOMY I. LOCATION OF THE COUNTY Suffolk County is one of sixty-two counties in the state of New York. As indicated in FIGURE 1 below, Suffolk is the easternmost county in New York State, comprising 1,000 square miles of the eastern two-thirds of Long Island.i The Algonquin tribe was native to the land that later became known as Suffolk County before the first European, a Dutchman named Adrian Block, made landfall in 1614.ii Although largely rural and agriculture oriented through most of its history, Suffolk has been characterized in the last century by rapid suburban growth. FIGURE 1: MAP OF SUFFOLK COUNTY, NEW YORK (County highlighted in green) Source: http://www.suffolkcountyny.gov/Departments/Planning/Divisions/CartographyandGIS.aspx II. HISTORIC ECONOMIC COMPOSITION AND ECONOMIC TRENDS The Suffolk County Comprehensive Plan 2035 (2011) provides an overview of the economic health of the county and historic trends.iii According to this report, the total output of goods and services produced in 2008 for Long Island (both Nassau and Suffolk County) was estimated to be $138.6 billion.iv This figure would place Long Island in the top 20 metropolitan areas in the nation.v Over the course of the past two decades, Suffolk County has seen a shift in the industries that dominate the local economy. According to the 2012 Profile Report by the Long Island Index, the NOVEMBER 2012 UNDERSTANDING ECONOMIC CONDITIONS 2 economy of Long Island was dominated by large firms in the defense and aerospace industry as recently as the 1980’s.vi With the end of the cold war, however, these industries have seen a sharp decline in prominence. However, the research and technology institutions as well as the pool of high skilled labor remain. Between 2005 and 2010, while the manufacturing sector saw a 21.2% decline in the number of jobs on Long Island, the education and health services sectors saw employment rises of 14.4% and 9.3% respectively. vii According to the Comprehensive Plan, although the loss of defense jobs hurt the long island economy, moving forward Suffolk County can depend on growth in several sectors. These include health, educational and social services, tourism, the arts, and emerging technologies such as bioscience.viii In 2008, the largest employers in Suffolk County were LIJ Health Systems (employing over 31,000 people), the Winthrop Health Systems, Stop and Shop supermarkets and Cablevision, each employing over 6000 people.ix III. ECONOMIC BASE ANALYSIS 2010: LOCATION QUOTIENTS AND BASE MULTIPLIER Economic base analysis was a process developed by Robert Murray Haig while working on the Regional Plan of New York in 1928.x In this analysis, a local economy is divided into two sectors: the basis and the non-basic. The basic sector is comprised of firms that depend on factors that external to the region (e.g. manufacturing exports) while the non-basic sector is comprised of firms that are more localized (e.g. drugs stores and restaurants). The central assumption of the Economic Base Theory is that a local economic grows with the presence of basic sector exports that brings money into the local economy and increases the demand for goods and services from non-basic sectors. This theory also hypothesizes that the local economy is stronger when it has more basic sectors because it insulates itself better from local economic downturns.xi One way to identify the basic sectors in a local economy is by calculating location quotients. This is derived by dividing the local employment number by the national employment number. A location quotient over 1.0 indicates that a local industry is basic. TABLE 1 below displays the six local sectors in Suffolk County that were considered basic in 2010. TABLE 1: Basic Sectors, Suffolk County, NY (2010) NAICS Industry Code Description LQ Base Employment 23---- Construction 1.4346 11129 31---- Manufacturing 1.0288 1484 42---- Wholesale trade 1.5063 13469 44---- Retail trade 1.1379 9497 54---- Professional, scientific & technical services 1.0866 3220 62---- Health care and social assistance 1.0765 6466 Source: U.S. Census Bureau, County Business Patterns In order to determine the estimated economic impact of basic sectors, the economic base analysis uses a figure called the base multiplier.xii This number illustrates the net job creation that results from the presence of basic jobs. For example, a region with a base multiplier of 3 indicates that the creation of one basic job will result in the production of 3 total jobs (including the basic job). The base multiplier for a region is determined by dividing total employment by basic employments. In 2010, the economic base multiplier for Suffolk County was 11.75. Therefore, by following the economic base theory, the creation of 1,000 jobs in the sector with the greatest base employment-the wholesale trade sector-would result in a total increase of 11,750 jobs overall. More specifically, 1,000 new basic jobs would result in 10,750 additional non-basic jobs. NOVEMBER 2012 UNDERSTANDING ECONOMIC CONDITIONS 3 IV. SHIFT-SHARE ANALYSIS 2001-2010 Shift-Share analysis is a technique for examining the sources of change in a regional economy.xiii In order to reveal the relative influence of various economic trends, the shift-share analysis divides employment change into the following three components: (1) National Growth Effect, (2) Industry Mix Effect, and (3) Regional Share Effect.xiv The National Growth Effect refers to the change in total employment as ascribed to the growth rate for national employment.xv In other words, this determines the extent to which the national economy grew or declined.xvi In order to determine the National Growth Effect on employment in Suffolk County between 2001 and 2010, the national employment growth rate (-0.98%) was multiplied by the local employment in each industry in 2001. Industry Mix refers to the amount of additional change that region would have occurred in the region had the various industries grown at their relative national rates.xvii To calculate the Industry Mix, the difference between an industry’s national growth rate and the overall national growth rate was multiplied the Suffolk County employment in each industry in the year 2001. The sum of all these figures revealed whether the mix of industries that exist in Suffolk County have experience growth nationally between 2001 and 2010. Finally, Regional Shift refers to the difference between the actual change in employment and the change that might have been expected had the region grown at the national rate.xviii This helps determine how a particular region compare to the national average. To calculate Regional Shift, the difference between the growth rate for each industry for the region and the nation was multiplied by the number of Suffolk County employees in that particular industry in 2001. The results of the entire shift-share analysis are displayed below in Table 2. TABLE 2: Shift Share Analysis (Suffolk County, 2001-2010) Total Total National Industry Regional Current Employment NAICS Industry Code Description Share Mix Shift (2010) Shift Forestry, fishing, hunting, and 11---- agriculture support 172 -23 47 195 23 21---- Mining 172 37 -64 145 -27 22---- Utilities 3,690 -35 -1,906 1,750 -1,941 23---- Construction 33,131 -5,185 8,790 36,736 3,605 31---- Manufacturing 63,719 -19,625 9,005 53,099 -10,620 42---- Wholesale trade 53,358 -3,939 -9,349 40,070 -13,288 44---- Retail trade 74,027 -797 5,148 78,378 4,351 48---- Transportation & warehousing 17,398 1,512 -1,034 17,876 478 51---- Information 20,382 -3,150 -2,450 14,781 -5,601 52---- Finance & insurance 24,554 -881 -177 23,495 -1,059 53---- Real estate & rental & leasing 7,299 -130 -263 6,905 -394 Professional, scientific & technical 54---- services 36,328 4,019 41 40,388 4,060 Management of companies & 55---- enterprises 9,223 -2 -709 8,511 -712 Admin, support, waste mgt, 56---- remediation services 35,358 233 871 36,462 1,104 61---- Educational services 10,132 2,768 -1,300 11,600 1,468 62---- Health care and social assistance 76,111 18,534 -3,660 90,985 14,874 71---- Arts, entertainment & recreation 7,095 1,018 -139 7,974 879 72---- Accommodation & food services 30,398 4,639 4,524 39,561 9,163 Other services (except public 81---- administration) 21,424 -328 1,918 23,014 1,590 Total (Excluding 95 and 99) 523,969 -1,335 9,291 531,925 7,956 Source: U.S. Census Bureau, County Business Patterns NOVEMBER 2012 UNDERSTANDING ECONOMIC CONDITIONS 4 As shown in Table 3 below, total employment for Suffolk County declined by 0.09% between 2001 and 2010. This was, however, a slower rate than the employment decline in the United States overall (-.2%) This difference is revealed further in Table 2 above where the shift analysis determined that Suffolk County employment beat expectations by 7,956 jobs. As seen in Table 3 below, the sectors that experienced the largest job growth between 2001 and 2010 were Accommodation and Food Services (28.08%) and Healthcare and Social Assistance (17.65%) while the sectors with the jobs loss were Utilities (-53.34%) and Information (-28.63%). TABLE 3: Sectors with Positive Employment Growth, Suffolk County, NY (2001-2010) Percent NAICS Industry Code Description 2001 2010 Change Change 72---- Accommodation & food services 30,887 39,561 8,674 28.08% 62---- Health care and social assistance 77,336 90,985