1. How Volatile is New York’s Economy? Richard Deitz Regional Economist Federal Reserve Bank of New York, Buffalo Branch richard.deitz@ny.frb.org December 4, 2002 NYSNER Conference Presentation

2. Objectives of the research It’s important to understand regional volatility since it shapes the local business cycle Volatility creates uncertainties for businesses, workers, & local governments If stabilization is a policy goal, we must first understand the magnitude and causes of regional swings This research is a first step: to measure volatility to identify the extent to which volatility is due to national economic fluctuations versus localized phenomena

3. Objectives of the research A National perspective: analysis of the national economy the U.S. economy has become more stable A Regional perspective: analysis of states and metro areas some areas are more volatile than others A New York perspective: regional volatility compared to other areas NYS is the most stable state in the postwar period Some parts of the state are more volatile than others

4. How Can Volatility be Measured? In terms of job growth, the primary regional economic yardstick (although output might be equally ideal) Standard deviation: how job growth rate varies over time about its mean rate measures dispersion over a specified time interval Can split this volatility into two components percent of volatility associated with national economic conditions remaining percent, due to localized phenomena

5. Volatility: Measured in Terms of Job Growth rolling 5-year windows Source: US Dept of Labor Year-over-year Percent Growth Buffalo Flint Michigan 5 years Compute Standard Deviation

6. U.S. Employment (growth) has Become More Stable up through the 1960s Standard Deviation of employment growth Shading indicates postwar national recessions (at midpoint of 5-year intervals) Employment Volatility Source: US Dept of Labor

7. Dispersion Among the States: Also Declining Standard Deviation of employment growth Shading indicates postwar national recessions Dispersion of Job Growth Rates (states weighted by size) Source: US Dept of Labor

8. State Volatility Rankings for the postwar period (1955 - present) Most Volatile #1 Alaska #2 Nevada #3 Michigan #4 Arizona #5 Wyoming #6 New Hampshire #7 Indiana #8 West Virginia #9 Washington #10 Florida Least Volatile #1 New York #2 North Dakota #3 Nebraska #4 New Jersey #5 Virginia #6 Oklahoma #7 Pennsylvania #8 Montana #9 Hawaii #10 South Dakota

9. New York State Volatility 1959 - present Source: US Dept of Labor

10. NY Volatility Compared to Other Metros 1959 - present Source: US Dept of Labor

11. Volatility in the 1990s Source: U.S. Department of Labor Volatility: 1990 - present

12. Seeking the Source Is volatility due to national fluctuations or localized phenomena? Statistically, we can identify the percent of regional volatility not explained by national economic fluctuations due to localized conditions, such as: labor strikes weather specific industry shocks: defense, energy, etc. –even if local volatility caused by national conditions, there can be a persistent localized effect

13. Percent of Volatility Caused by National Fluctuations Highly Localized #1 Alaska (6%) #2 Wyoming (7%) #3 Nevada (7%) #4 Hawaii (17%) #5 New Mexico (23%) #6 Oklahoma (25%) #7 Montana (25%) #8 Idaho (25%) #9 South Dakota (26%) #10 Louisiana (30%) Tied to Nation #1 Ohio (89%) #2 Wisconsin (84%) #3 Missouri (83%) #4 Pennsylvania (82%) #5 Illinois (81%) #6 Minnesota (80%) #7 Indiana (80%) #8 Georgia (79%) #9 Michigan (77%) #10 N. Carolina (76%) New York - ranked 21 (65% )

14. Percent of Volatility Explained by U.S. 1959 - present Source: US Dept of Labor

15. Volatility Ties to the U.S. 1959-present Source: US Dept of Labor

16. Volatility Ties to the U.S. in the 1990s Source: US Dept of Labor

17. Conclusions National volatility nationwide declined up through the 1960s, and has since moved up and down with the broad business cycle New York State and its metros are amongst the most stable economies (postwar period) During the 90s Utica, NYC, LI, Binghamton & Albany experienced moderate levels of volatility Buffalo, Syracuse and Rochester were more stable Future research can further reveal the causes of these regional differences, and perhaps how to mitigate volatility