Battered by economic stagnation for several years, the New York City metropolitan region is poised for a rebound, according to a new survey by the Federal Reserve Bank of New York.
"Consumers and analysts remain wary about economic prospects of the Second District, but is caution here simply becoming a habit?" asked Jason Bram, an economist with the New York Fed.
"True there are some weak spots, but strong performance in the southern tier is pointing to a brighter economic future for the district," he said.
The Second Federal District covers New York State, northern New Jersey, and southwestern Connecticut.
Writing in the February edition of the New York Fed's monthly bulletin, Mr. Bram sharply distinguished between the New York City metropolitan region and upstate New York, where the outlook still remains gloomy.
The upbeat forecast clashes sharply with the views of most bank economists, many of whom believe the only way for banks to boost earnings in the region is either by grabbing market share or slashing manpower.
"Factually, the economy of the region remains depressed," said Irwin Kellner, chief economist at Chemical Banking Corp.
Employment in the metro area remains well below earlier peaks, he said. Office construction is at a standstill, city and state payrolls are being cut, real estate prices remain depressed, and taxes remain high.
Though Mr. Kellner agreed that there are some bright spots, such as the growth of the multimedia industry, the overall outlook still remains subdued.
Lacy Hunt, chief economist at Marine Midland Bank, agreed. "The economy of this area is not improving," he said. "In fact, it has the feel of a recession.
The latest round of corporate layoffs in New Jersey by AT&T Corp. will only further depress the region's economy, he said.
But Mr. Bram insisted that "the New York City area's industry mix, inflation trends and other attributes are helping to turn its economy around, while downsizing in manufacturing and state government is restraining economic growth in the north part of the district."
The Fed economist did not contest a number of the issues raised by bankers, but he said that over the long-term the emerging underlying trends are positive.
"One could argue that regional economies move in cycles and that in New York City the economy appears to have bottomed out and is poised for recovery," he said.
Mr. Bram cited a narrowing gap in job growth between New York City and the rest of the country, a halt in population decline, continued strong immigration, and robust growth in tourism and in the securities industry as some of the reasons for his optimism.
He added that incomes remain strong despite the large number ofjob cutbacks.
Strong income growth, coupled with a proliferation of smaller start-up companies means that the number of potential customers will likely continue to increase, he added.
However, others said that the current surge in mergers among banks come as a result of depressed economic conditions and serve to inadvertently prolong economic stagnation.
"Banks have recognized that they have to improve profitability through either market share or cost reduction, and the quickest way to cost reduction is through mergers," Marine Midland's Mr. Hunt observed. "Banking mergers themselves reduce the region's potential for growth because you not only get a reduction in jobs, you get a reduction in higher-paying jobs."