New index developed to measure Downtown economy
By Divya Watal
The economy of Lower Manhattan is slowly healing from its post-September 11 wounds, according to a new economic index for Downtown.
Pace Downtown Index, developed in July 2004 by Pace Universitys Center for Downtown New York, measures the state of business activity in the Downtown area. In one comprehensive number, the index the effect of economic revitalization in the past month.
Its a substantial tool for showing how were doing economically, said Daniel Slippen, director of the Downtwon center.
The index is the first post-September 11 indicator to track economic activity in Lower Manhattan.
Slippen developed it along with three professors and analysts at Pace UniversityJoseph Morreale, Farrokh Hormozi, and David Pearlman. They used four variables to calculate the statistic, two from financial markets and two from the real estate market. Specifically, they used Standard & Poors 500 index, the federal funds rate, the gross Lower Manhattan product, and real estate vacancy rates.
Any index is a collection of variables, explained Hormozi, professor of economics and political science at Pace. Accurate data is very important to develop a good index. For a local area like Lower Manhattan, such data does not exist. So, we have to synthesize the situation. The four variables we selected have a psychological impact on people in this area.
When the S & P goes up, people feel good, said Hormozi. And when they feel good, they go out to dinner at restaurants. They drink at bars. They buy clothes at stores. The psychological effect is built into the index.
The S & P 500 is particularly important for Downtown since the financial services industry is concentrated on Wall St. Hormozi said he placed greater weight on the financial variables because the index is for Lower Manhattan. Had they made a similar model for Midtown, they would have used lower weights or replaced the variables with more appropriate ones, such as hotel occupancy rates, Hormozi said.
The index takes 1996 as the base year and places it at the 100 level. In 1996, the Lower Manhattan area was beginning to recover from a slump in the real estate market. Over the next four years, financial markets accelerated, reaching a climax in 2000, registering a high of 111.68 for November 2000.
After September 11, 2001, economic activity plummeted, and the index declined that reaches to its lowest point of 95.43 in February 2003. Since then, the growth rate has gradually crept up the ladder. The latest P.D.I. statistic for August 2004 is 97.36.
How long will it take for Lower Manhattan to reach pre-September 11 levels?
We should reach 100 by next summer, said Hormozi. Everythings moving in the right direction. Theres a lot of activity in the downtown area, and our evaluation is that growth will be continuous.
P.D.I. is updated on the third Thursday of each month at Pace Universitys Web site, www.pace.edu/paceindex, as well as at www.LowerManhattan.info.