Northeast Stagnation Continues, Sapping US Economy

ALONG with southern California, the Northeast continues to be a sectional weak-link in the United States economy. Neither region is likely to rebound quickly, undercutting prospects for a revival of strong national growth, economists say.

"The economy just isn't looking as good as we'd expected at this time," says David Wyss, an economist with DRI/McGraw-Hill, a consulting firm in Lexington, Mass. "The second half of 1993 should be better than the first half for the national economy; but the second quarter, which ends in June, will be weak."

DRI projects national economic growth of 2.8 percent in 1993. But unforeseen economic circumstances could knock that expectation off course, Mr. Wyss says.

The best-performing sections of the US include the Southwest oil states, the Southeast, and the farm states. The upper Midwest is picking up some steam because of higher car sales.

The upper East Coast, however, remains mired in trouble. New York City has lost 145,000 jobs since March 1991, or 4 percent of the city's employment base, according to a report issued this week by the US Bureau of Labor Statistics (BLS).

"When you get such a steep job loss and such a sharp setback in the housing market as has happened in the New York area, you develop a tremendous amount of downward momentum for the entire region that is very hard to overcome," says Jason Bram, an economist with the Conference Board, a business research organization.

NEW Jersey is especially vulnerable to corporate restructuring taking place in the New York City, since many upper management officials commute to Manhattan from there, Mr. Bram says. New Jersey and Connecticut have also been hard hit by cutbacks in defense spending.

"In the Northeast, this is absolutely the worst recovery since the Great Depression of the 1930s," Bram says.

Last week the BLS announced that New Jersey's unemployment rate had shot up to 9.1 percent from 8.3 percent in March, giving Jersey the highest jobless rate of the 11 largest industrial states. Unemployment fell slightly in New York State (from 7.3 percent to 7 percent), while rising a tad in Massachusetts, from 6.4 percent to 6.5 percent. Unemployment in New York City has been hovering near 10 percent for the past few months.

"New York City has been adding jobs in ... brokerage houses, retailing, and within the service industry," says Rosemary Scanlon, chief economist for the Port Authority of New York and New Jersey. But these gains "continue to be outweighed by retrenchments in other local industries, including insurance, airlines, communications, and utilities."

Ms. Scanlon expects some job growth to resume in New York City later this year. That prediction assumes continued growth in the national economy.

One concern is that the health-care sector - which accounted for a large number of the 1 million new jobs created nationally in the last year - could slow under the impact of reforms to be proposed next month by the Clinton administration.

Experts here also note that New Jersey is very dependent on the pharmaceutical industry, which has been under pressure from the White House to lower prices for consumers.

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