Long Island Headed for Mild Recession in 2007, C.W. Post Study Says

Falling home prices, rising interest rates & expensive energy likely to slow economy, reports Center for Management Analysis

Brookville, N.Y. – Long Island’s economy will undergo a mild recession in 2007, brought on by rising interest rates, declining housing prices, a downturn in new construction and high energy costs, according to a new economic outlook report to be released Monday, October 9, 2006 by the Center for Management Analysis at the C.W. Post Campus of Long Island University.

The CMA analysis concludes that a 0.5 percent decline in jobs is likely. If housing prices fall or oil prices rise more than expected, the recession could be more severe, and a catastrophic event such as a terrorist attack on American soil could lead to a more “critical” situation, the report said.

“Local and national trends make it clear that an economic slowdown will occur on Long Island in the near future,” said Dr. Matthew C. Cordaro, director of the Center for Management Analysis and acting dean of the College of Management at C.W. Post. “Hopefully by anticipating this slowdown over the coming 18 months, individuals, businesses and organizations can plan accordingly.”

The CMA report notes several reasons why the economic expansion of the past five years has come to an end. The stimulating effects of the 2001 and 2003 tax cuts have petered out. Low interest rates that prompted widespread refinancing and put cash in consumers’ pockets have given way to higher rates, ending the refinancing boom. Higher interest rates have also ended the easy access to mortgages that fueled the strong housing market and construction industries. Finally, elevated energy costs have put the brakes on consumer spending.

Long Island’s defense and banking industries led the local economy in the 1990s, but since the turn of the millennium, the development industry, the service sector, technology and small companies have been the engines of growth, according to the CMA report.

“This restructuring bodes well for the region’s future by stimulating future growth in all sectors of the economy,” said the principal investigator for the analysis, Dr. Thomas Conoscenti, a visiting professor at the C.W. Post College of Management. “In the short term, however, these sectors tend to be a drag on the regional economy because they lack the coordinated capital density needed to sustain the economy.  Thus, the effect is that the regional economy will slow down into a recession for Long Island by mid-year 2007 and result in at least a 0.5% decline in jobs and related wages and salaries.”

The Center for Management Analysis at the C.W. Post Campus of Long Island University was established in 1981 to serve the diverse needs of government, business and the community.  Its purpose is to provide a climate for research, consultation and problem solving by uniting educators and practitioners in addressing public issues through reasoned dialogue and analysis rather than political rhetoric.

To obtain a full copy of the report, “Long Island Economic Outlook: Recession Projected for 2007,” e-mail matthew.cordaro@liu.edu or call the College of Management at (516) 299-3017.