New York’s conservative Empire Center think tank is urging fiscal caution as Albany gears up for its annual budget negotiations amid signs that the current economic expansion has run its course.
Most troubling is the Labor Department’s Index of Coincident Economic Indicators, which weighs such key economic indicators as private sector employment, the unemployment rate, average weekly hours of manufacturing workers and sales tax collections. The index dropped at a 2.6 percent annual rate in December, the fourth consecutive month of decline.
Since the inception of the ICEI in 1970, a four-month decline has always – that’s always – signaled a recession.
As the Labor Department website cautions, the index does not predict how the state’s economy may be performing in the future. “However, the index is the closest thing we have to a general current conditions and trends report for the state,” McMahon noted.
Measured on a comparative yearly basis, the index was up just 0.9 percent from 2015, one of the weakest performances in the past half century.
Of course, that does not guarantee that the state is heading for an economic downturn. In an economy less reliant on manufacturing employment, the factors used to produce the ICEI may have become less indicative of overall conditions, the Empired Center noted. And the labor information used to calculate the ICEI is often revised, as the current numbers will be in March.
However, a similar New York economic index maintained by the Federal Reserve Bank of New York has recently paralleled the state’s index. New York State also ranked among the bottom 10 states – that is, the slowest growing – in the forward-looking State Leading Indexes report from the Philadelphia Federal Reserve, which is designed to predict a six-month growth rate. The next State Leading Index report is due out in February.
“At the very least, the indicators are a strong fiscal caution signal for the state government,” McMahon wrote, noting the governor’s proposed $1 billion in school spending and free college tuition program.
“Last but least, another big state budgetary risk factor is the impact of Congress’ coming reworking of Obamacare and likely changes to the Medicaid program, which could cost the state billions of dollars.”