Markets lifted today after the government slashed its estimate for second-quarter economic growth, but not by quite as much as economists had expected. The Commerce Department reports that gross domestic product grew at a 1.6 percent rate in the April-to-June period. That's still way down from its earlier estimate of 2.4 percent. The Dow added 165 points today, to close at 10,151. It had a loss of 63 points for the week. The Nasdaq and the S&P 500 gained today as well.
Also today, Crain's is reporting the organizer of Fashion Week will use union workers when it opens at Lincoln Center next month. IMG Fashion, which produces the twice-yearly event, caved in to the International Alliance of Theatrical Employees, rather than face demonstrations outside the tents.
Weekly Economic Roundup
This week brought a slew of bad news for the economy, including a sharp drop in the sales of existing homes. In New York, it was a slightly different story, with two big office tower projects getting planning approval. And today Federal Reserve Chairman Ben Bernanke sought to reassure doubters on the economy with a major speech at a retreat in Wyoming.
Greg David, director of the Business & Economics Reporting Program at the CUNY Graduate School of Journalism, reviews this week's business and economic news.
It looks as if markets liked Ben Bernanke's address today -- major indices rose. What did he say that made traders happy?
He said that if things get really bad, he'll act. He outlined three ways he could act. The primary way is that the Fed would buy long-term Treasury bonds or mortgage-backed bonds in order to put money into the economy. You see, the problem is that interest rates are so low, virtually non-existent for big institutions, he can't cut interest rates, so what's he going to do if the economy is really bad? But I think the other thing he said is that he doesn't think we're headed back into another recession. He said growth will continue in the second half of the year, if not as quickly as we'd like. And I think people took some confidence from that.
There's now a lot of doubt about the strength of this recovery, and the Fed only has, as you said, so many tools in its kit to rev things up. What are some of the options available to the president and Congress?
I don't think there are many available, because it's pretty clear that Congress isn't going to go for more stimulus, and you know there is a growing sense out there that the American public doesn't think the stimulus worked either -- that's what the election results are saying. And so stimulus really isn't another option, and I agree with those, actually, who say the stimulus has been way oversold and won't help the recovery much at all.
Also on the agenda in Washington this fall: One decade after they were enacted, President Bush's tax cuts for the richest Americans are scheduled to expire. If they do go away, how will New York be affected?
Well, more than anywhere else -- what else is new, right? The thresholds are families making more than $250,000, individuals making more than $200,000, will see their taxes rise. It's about two percent, three percent of the country. It's more than five percent of New Yorkers. The other thing in the Obama plan is relatively large increases in capital gains and dividend taxes. So how many people get dividends in New York City? About 700,000. How many get capital gains each year? About 400,000. So those groups will see very big increases.
It should be noted though, that in the lower end of that spectrum of just above $250,000 is a much smaller increase than say, the folks at the very, very top end of the spectrum, who would see the biggest increases in their taxes.
That's fair to say, yes.
Let's get really local. We've been talking this week about two office towers that got important green lights this week -- the redevelopment of the World Trade Center, and 15 Penn Plaza in Midtown, which is planned to rival the Empire State Building in height. There's already speculation that the second project could steal tenants from the first. In your opinion, which is more attractive, and why?
That depends. And the first thing it depends on is whether you need space now, because if you need space now you're going to go to One World Trade Center, the Freedom Tower, because it's actually under construction. The Vornado tower is just a drawing. They're not going anywhere until they get a big tenant. In the end, the same rule that has governed New York real estate for the last 20 years will govern this one. People go downtown because it's less expensive. That's why Conde Nast, a media company whose business prospects aren't what they once were, is going to the Freedom Tower. If your business prospects are better, you want to be in Midtown, the most important business district in the whole wide world, the best business district in the whole wide world. And those people will want to go to the new tower at Penn Station.
And that tower, which, as we said, could be almost as tall as the Empire State Building, is expected to add 2 million square feet of office space to that Midtown area. I suppose we of course don't know what the economy will look like in several years, when that is planned to be built, but is there enough demand, for that much office space?
There will be enough demand, and I just wrote about this this week, in Crain's, on Monday. We don't have enough modern office space in New York. We are not building enough modern office space. It's a great threat to our economy. We need towers like that. Two million square feet is not enough.
Is the Economy to Blame for a Lower U.S. Birth Rate?
The U.S. birth rate hit its lowest rate in a century in 2009. It's the second consecutive drop, and some observers believe the recession may be the reason couples are reproducing less.
"When the economy is bad and people are uncomfortable about their financial future, they tend to postpone having children," said Andrew Cherlin, a sociology professor at Johns Hopkins University, who added that the same thing happened in the Great Depression.