Is New York ready for the recession?
What is the size of your economic umbrella?
Photo: Gary Hershorn/Corbis via Getty Images
No, it’s not your imagination: an economic storm is heading for New York, and today’s cloudy skies could be a cyclone in the near future. Individual bad news continues to be announced here and there, in a way that has not (yet) caused widespread concern in New York. Consumers spend; workers pressure their bosses for higher wages and better benefits; and politicians seem determined not to talk about the issues ahead until after the November election.
But a close look at some key data suggests that New York families and businesses are poised to be hit by rising food and fuel prices, a crashing stock market and the looming possibility of a devastating economic recession.
“The nation as a whole has recovered 95% of the jobs lost during the pandemic. We recovered 74%. So we’re way behind the rest of the country,” says Greg David, a writer at The City who spent 35 years in Crain’s New York Business report on the local economy. David says Wall Street’s financial sector and the city’s tech sector are taking a serious hit right now that will likely be felt in a few months.
“We started to see layoffs in the technology sector. I think unless the markets recover, we’re going to be hit,” David told me. “We haven’t got the jobs back, which are mostly low-wage, tourism-related jobs, retail jobs. And now some of our most successful industries will also lose. »
The share price of Brooklyn-based online retail operator Etsy has fallen more than 53% in the past year; the company recently announced that it expects sales to decline. Peloton, the Manhattan-based digital exercise equipment and media company that exploded in popularity during the pandemic, fell more than 87% and recently laid off 2,800 employees. Digital media company BuzzFeed went public last December and immediately plummeted: the stock lost more than 56% of its original offering price. Vimeo, the video hosting platform, is down 77% from a year ago.
In Queens, shares of airline JetBlue have fallen more than 47% in the past 12 months; the company recently cut growth plans from 15% to 5% and last year made noise to move most or all of its 1,300 headquarters jobs to Florida.
The growing financial bloodbath on Wall Street and in the tech sector will eventually be felt throughout the “real” economy in New York. The layoffs are an obvious measure of distress: Just ask any of the former employees of Better.com, a World Trade Center-based mortgage lender that laid off 900 workers a few weeks ago on a Zoom call. which lasted 12 minutes.
The mortgage market downturn that contributed to Better.com’s bloodbath isn’t over: The Federal Reserve, which controls short-term interest rates, has begun to raise them, knowing that the banks will follow and rise the price of borrowed money. for homes, credit cards and business expansion. The Fed’s specific goal is to make people and institutions less likely to invest in homes, apply for a new credit card, or expand their business. This chilling process – also known as demand destruction – is a pretty brutal way to convince consumers that the price of something they want to buy is just too high. In theory, if enough people sit on the sidelines and stop buying things — gas, new cars, second homes, eating out — prices will start to drop. With inflation at its highest level in 40 years, this has become the Fed’s main objective.
But the process only works if people slow down their spending. And so far, that’s not happening, according to State Comptroller Tom DiNapoli.
“You know, it’s interesting. We report on local sales tax collections. They are still up significantly – not just from last year, but from [pre-pandemic] Figures from 2019,” DiNapoli told me. “People are still spending. People are not happy with what they pay, but they keep spending. You look at consumers, consumers haven’t really backed off yet. They are not happy, they are worried about the future, but they continue to spend. In fact, government personal income tax revenues continue to be higher than expected, month after month.
This spending is on a collision course with powerful global economic trends and events. In addition to the Federal Reserve’s interest rate hike, the ongoing war in Ukraine pits the world’s largest exporter of oil, gas and wheat (Russia) against the world’s fifth-largest wheat exporter (Ukraine). We are already seeing record high food prices and gasoline is also skyrocketing. All of this only exacerbates the inflation problem that consumers – and the Fed – face.
If that wasn’t enough, the situation in China — a COVID outbreak to which the government responded by shutting down major cities — has shut down factories that make many of the computer chips used to power smartphones, automobiles and computers. games. brackets. The resulting global shortages for all of these goods put additional upward pressure on prices.
And here in the city, the housing market is so tight that there are more Airbnb rentals available in the city than regular vacant apartments. Layoffs and a decline in lunch and dinner business have contributed to the closure of an estimated 1,000 restaurants since the start of the pandemic, putting countless waiters, bartenders, cooks and busboys out of work.
What should a smart consumer do?
First, recognize that powerful economic forces – especially the Federal Reserve – can easily slow the economy to the point of causing a recession.
“The Fed’s strategy is to slow the economy to reduce inflation, but without causing a recession,” David explains. “It’s an incredibly difficult thing to do.”
If the Fed goes over the mark, it could trigger a recession, defined as months — possibly years — in which hiring and business openings slow. In the worst case, called stagflation, prices remain high even as business activity slows. If you have discretionary purchases that can wait, it might be best to save for the rainy day that may come in the next 12 months.
Also consider carefully how likely your sector is to be exposed in the event of a recession. Many media, real estate and finance workers are doing well right now. But the current stock market crash means hundreds of billions of dollars are being lost. Sooner or later, this can result in layoffs.
“My advice is to anyone who thinks they can quit their job tomorrow because a better job is just around the corner: that might be true today. Personally, I don’t think that will be true with time,” David says. “I’ve given up on the idea that the mayor or the governor can control whether people go back to office — that’s not going to happen. People will come back to the office when “I might lose my job” comes to mind, because in the moment they think, “I can’t be fired.”
And we should all be requiring candidates for local and federal positions to submit detailed plans for how they plan to prepare for a possible downturn.
The state’s Rainy Day Fund, for example, currently has a total of $3.3 billion. While Governor Hochul has projected reserves to grow to more than $15 billion over the next three years, we still don’t know how much will be set aside for “economic uncertainties.” She will also have to answer for questionable budget items such as the huge grant she gave to the Buffalo Bills for a new stadium. In a recession, such choices will be a source of great anger when the hard times come.
At the local level, city and state comptrollers have both urged Mayor Adams to establish funding standards for the city’s new rainy day fund. “With inflation rising, unemployment still too high, a declining stock market, and so much long-term uncertainty, our economy is facing headwinds. New York City will need strong reserves to weather the storms. future fiscal storms,” Comptroller Brad Lander said in a statement, urging Adams to set aside $2.5 billion, far more than the $700 million the mayor allocated in his executive budget.
Not setting aside money now to protect against problems later is difficult for anyone, and especially tricky for politicians in an election year. But extraordinary times call for extraordinary changes — in this case, a shift in New York’s political culture toward preparing for an economic hurricane no less destructive than the savage weather forming offshore this summer.