Long Island's economic recovery stalls

Long Island's economic recovery has hit major obstacles as market forces -- from a lack of job creation to investor anxiety -- combine to stall or stifle growth in key sectors.

Jobs, retail spending and housing, the most important indicators of the region's economic health, are struggling.

Long Island has lost 7,800 jobs in the past 12 months, even as the United States has slowly added jobs.

Real estate values in the region as a whole have fallen quicker and further than those of the rest of the country. In Suffolk County, average home values declined 21 percent since the start of the recession, compared with a 16 percent drop across the United States.

Retail sales have flattened here this year, while still recovering nationally, which economist Pearl Kamer of the Long Island Association, the region's largest business group, attributes partly to large numbers of baby boomers here who have cut spending as their retirement nest eggs have been whittled down by stock and interest rate declines.

Sales of new vehicles were down locally by 7.6 percent in June from a year earlier, a slightly larger decline than occurred nationally.

In three other indicators -- office and hotel occupancy and home construction -- the local economy is languishing, but at least doing no worse than in the nation as a whole.

Consumers, who generate 70 percent of the economic activity in the nation's economy, have felt the brunt of the recession on the Island. Many were heavily in credit card debt and in some cases purchased houses with mortgages they couldn't afford, said Kamer. Those factors, among others, are what made the impact of the recession and the difficult recovery even more painful.

"This one probably hit our people harder in the pocketbook," she said.

More than 43,000 Long Islanders have exhausted their extended unemployment benefits in the preceding 17 months, a number that's expected to grow.

The wild gyrations in the stock market and the divisive political battle in Washington over raising the debt ceiling -- resulting in the first downgrade in history of U.S. debt -- have made the outlook more uncertain.

"We moved closer to a double-dip recession," Kamer said. "And what's frightening to most economists is that we don't have the tools to escape if we do go into a double dip." She says pressure to cut federal spending limits government options to spur the economy, while already low interest rates limit the Federal Reserve Board's options to spur borrowing.

Here is a breakdown of what economists consider to be the most important sectors of the Long Island economy.

Employment: The nation has been gaining jobs this year, but Long Island's economy started bleeding them again in May after 11 consecutive months of gains.

The state reported Thursday that the Island lost 7,800 jobs in the 12 months that ended last month -- the biggest decline since March 2010 and the third straight month of job losses.

The biggest losses were in leisure and hospitality, finance, government, information technology, and educational and health services, said Michael Crowell, a Long Island economist with the New York State Labor Department.

The region entered the recession with lower unemployment than the rest of the nation -- 3.8 percent -- and the rate rose to a recession high of 8.3 percent in February of last year. It dropped to 7.1 percent in June. The national rate rose from 4.7 percent in November 2007 to a peak of 10.1 percent in October 2009 and has since slid to 9.1 percent -- as of July.

Housing: Long Island homes cost more -- the median is $406,000 in Nassau and $310,000 in Suffolk, versus $171,900 nationally -- so they lost significantly more value than the typical American home as the subprime market imploded, people lost jobs and foreclosures soared. But Suffolk homeowners fared much worse than the rest of the country as home values declined almost 21 percent or $83,000. Nationally, home values dropped $33,800 or 16.4 percent.

In Nassau, values fell by $60,000 or 12.6 percent since 2007. Increased foreclosure rates in Suffolk explain the high percentage drop in values.

The latest figures from the Multiple Listing Service of Long Island show the trend persisting. Selling prices in July were lower than those a year ago -- by 3.7 percent in Nassau and 7.4 percent in Suffolk -- although last year's numbers were inflated by the now-ended federal home buyers tax credit.

One encouraging sign in housing: foreclosure filings slowed on Long Island and nationally in July, with 682 new cases locally compared with 720 in June and 808 a year earlier, according to foreclosure monitor RealtyTrac. The July figures represented declines of 5 percent from June and 15 percent from a year earlier. Nationwide, the declines were bigger -- 4 percent from June and 35 percent from a year ago.

Retail sales: Retail sales held up fairly well through last year, not dropping as much as they did nationally. But now they are flat through July while national figures, available only through June, show an 8.5 percent increase.

Sales tax revenue dropped in Suffolk and Nassau counties during the depths of the recession in 2009 by 7.5 percent, less than the 9.2 percent drop nationally. Sales tax revenue nearly recovered last year, with Nassau's rising by 6 percent and Suffolk's by 2.2 percent. But growth has been deteriorating this year, with revenues Islandwide up only about 1 percent from the first seven months of last year.

Economist Robert Lipp, deputy director of Suffolk's budget review office, said sales tax revenue had grown every year since the 1970s and peaked in 2007.

"We did much better in 2010 [than in '09]," Lipp said. But we had been lulled into a false sense of security because we had a very low bar to jump over. We're still not bringing in as much as we had in 2007."

Small businesses suffered the most on Long Island, said Marshal Cohen, chief industry analyst for The NPD Group, a Port Washington market research firm. "A lot of them were going month to month," Cohen said.

At Mannino's, a restaurant in Commack, gross receipts dropped in 2009 after 13 years of steady increases. "We felt it right away," said co-owner Joe Mannino. "We're down 20 percent." "The weekends are still decent, but weeknights tend to be slow," he said. "Instead of ordering two or three drinks, people are having only one. They're definitely watching what they're spending."

Car sales: Sales of new cars had been a bright spot earlier this year but local figures for June -- the latest available -- show that Long Islanders registered 7.6 percent fewer cars and trucks than in June 2010 -- for a total of 14,922 registered, according to the Michigan-based auto information provider R.L. Polk & Co.

Construction: New home construction is about as seriously depressed on Long Island as it is nationwide, down an estimated 50 percent since the start of the recession.

Mitch Paley, a lawyer who is chief executive of the Long Island Builders Institute, said the market for trade-up, moderately priced housing costing from $400,000 to $700,000, has stalled.

"The lack of people in the marketplace impacts the willingness of developers to go out and get building permits," he said.

But some elements of the market remain strong -- East End luxury homes, rental units and assisted living units.

Equally uncertain is the outlook for public works projects on Long Island amid cuts in federal and state funding, said Marc Herbst, executive director of the Long Island Contractors' Association, whose members build highways, bridges, sewers and parks.

"We are now at the lowest investment level in public infrastructure in 30 years and there is absolutely no recovery on the immediate horizon," he said.

Herbst said state funding is about half what it was a decade ago, and he estimated that unemployment in the Island's heavy construction industry is about 30 percent.

Hotel occupancy: Occupancy rates fell by 8.1 percentage points from 70.9 percent to 62.8 percent on Long Island from 2007 to last year -- about the same as the nation. The Island's hotels have been 62.3 percent full this year through June, up from 61.5 percent in the same six months last year, said Kristen Matejka, director of marketing at the Long Island Convention and Visitor's Bureau and Sports Commission.

At Danfords Hotel & Marina in Port Jefferson, which has 86 rooms, general manager Stew Weiner said business is up almost 5 percent this year through July. -- "August is probably going to turn out to be one of the best Augusts we've ever had," he added, citing boosts in business and leisure customers.

In Suffolk, about 80 percent of hotel stays are leisure travelers with the remaining 20 percent business, the bureau says. In Nassau, the proportions are reversed.

Weiner says he's seeing increases in business travelers, European leisure travelers and in Long Islanders taking "staycations," -- keeping close to home for leisure activities.

Office occupancy rates: The percentage of vacant office space, a key barometer of business health, is lower on Long Island than in the nation -- 15.6 percent at the end of June, compared with 16.2 percent nationally, according to the CB Richard Ellis Group Inc., a commercial estate services firm based in Los Angeles. But the latest national figure represents a slight improvement from a year earlier -- six tenths of a percentage point -- while the Long Island figure represents a deterioration of one tenth of a percentage point.

Before the recession, in the second quarter of 2007, the national rate was 12.4 percent and Long Island's was 12.6 percent.

At Greiner-Maltz, which says it is Long Island's oldest commercial real estate broker, president William Greiner isn't optimistic about the near term.

"We find more space becoming available than is being absorbed," he said. "It hasn't leveled off yet and it has to level off before can see real improvement." The Island has about 39 million square feet of office space, according to the real estate firm Cushman & Wakefield.

He said prices for available space keep dropping -- to an average of $96 a square foot to buy compared to $113.60 in 2008. "The last good year we had was 2006," he said.

Newsday reporter Hugo Kugiya contributed to this story.