State economy seen as 'fragile,' outlook shaky

New York State's economy is "fragile" and likely to experience setbacks as it ever so slowly improves, said a report released Tuesday by state Comptroller Thomas DiNapoli's office. And even that was a bit too optimistic for some.

"DiNapoli is quite correct in striking a note of caution, given the 'fragile' state of the recovery," said Anthony Sabino, a Mineola attorney and professor of law and business at St. John's University. "That being said, I do wish he put more emphasis on the risk that there might be a 'double dip' in this recession . . . and that the recovery of Wall Street is still uncertain."

The report on the state's economic trends delivers a sober assessment of New York's economy during and after the recession. While Wall Street's profits rebounded with the help of federal bailouts and a low-interest-rate policy, the report noted that the financial sector continues to lose jobs and that profit increases have slowed.

Unemployment remains high, dropping from the 17-year high of 8.9 percent during the recession to 8.3 percent in August, it pointed out. The rate of foreclosures between 2007 and 2009 rose 30 percent - much lower than the 120 percent national increase - and still there remain areas with high foreclosure rates downstate.

Add to that scenario the likelihood that federal stimulus aid that helped state and local governments stay afloat in the recession will decline as the federal government tends to its own deficit problems, the report said.

"Given the already high tax and debt burden in New York State, the state and its localities should focus their efforts on reducing the cost of government," the report recommends.

The report highlights a few rosy points, mainly that the private sector created 68,900 jobs between December 2009 and August 2010, and that New York City and its suburbs also saw much of the job growth, adding 90,000 jobs since 2009.

While DiNapoli's assessments are accurate, Martin Melkonian, an economics professor at Hofstra University in Hempstead, said his outlook is far more bleak. Wall Street may be earning record profits, but not much of it is trickling down to the middle class, he said. Housing prices seem to have stabilized, but more foreclosures may be on the horizon and could push prices down further.

The federal deficit and the billions spent each month fighting two wars put in question whether there will be another stimulus package to help the states.

"There are going to be many more cuts in state and local employment," Melkonian said. "As DiNapoli pointed out, we are facing huge structural deficits in the future. So the overall employment, though it has been picking up in the private sector, but not a lot, is probably going to be swimming uphill.

"I hope that we are going to see a rebound, he added, "but I am not optimistic this will occur."