March 8, 2021

Divining New York’s Fate Should a Double-Dip Recession Hit

If the plodding national economy stumbles into another recession, New York — plagued by high unemployment and the prospect of a rising tide of layoffs on Wall Street — probably will take a tumble, too.

“The likelihood of a double-dip recession has increased, and that’s led to a great deal of concern,” said Ronnie Lowenstein, director of the city’s Independent Budget Office. “If there were to be a double-dip recession at the U.S. level, certainly the city would be in trouble.”

The last recession, triggered by the financial crisis that wiped out some of the biggest American investment banks, surprised many economists and local officials by being shorter and shallower in New York City than elsewhere. The city has regained jobs lost since the financial crisis of 2008 at twice the rate of the country as a whole.

The city had the added benefit of surpluses that had piled up during the rapid growth that preceded the crisis, helping to bridge gaps in the budget in the last few years.

“The cushion that the city had built up during the boom years is now largely behind us,” Ms. Lowenstein said. “If we were to go back into recession this quickly, from a fiscal standpoint we wouldn’t have some of the benefits we had last time.”

The concern that New York would not fare so well in another downturn stems partly from rumblings about layoffs from the big banks with headquarters in the city. They did not cut as many jobs during the downturn as city officials had been bracing for, but the worry is that a second round would make up for that.

“Now we’re starting to see another round of big layoffs in the financial services industry in New York, and it looks like that is going to be ongoing for some time,” Marisa DiNatale, an economist with Moody’s, said. If the national economy stops growing altogether, Ms. DiNatale said, there will be “even a bigger chance that layoffs continue for longer and are even larger.”

In May and June, Wall Street already had “wiped out” all of the jobs it had added since January, Ms. DiNatale said. She added that she would not be surprised if employment in the securities industry fell nearly as low as it had at the depths of the recession. That would mean the loss of several thousand additional high-paying jobs.

Last week, said the chances of a double-dip recession had risen to one in three, from one in four just two months ago.

“The city almost never bucks the trend,” Ms. DiNatale said. “If the U.S. goes into recession, the city almost always goes into recession as well.”

On Friday in Lower Manhattan, William C. Dudley, the president of the Federal Reserve Bank of New York, said that he had reduced his forecast for economic growth, but that he still did not expect another recession this year.

“We’ve had a lot of turbulence in financial markets,” Mr. Dudley said at the end of a week in which the stock market swung wildly down and up, then back down and back up. But he said he doubted that the volatility signaled a reversal of the anemic recovery.

Mr. Dudley described the pace of growth in the metropolitan region as “disappointing,” and he called the recent round of layoff announcements from big banks a “potentially troubling development.”

Still, he said, the city is less vulnerable to a slump on Wall Street than it once was because its economy has been diversifying. As evidence, he pointed to statistics showing that in the past year the big banks and other financial companies did not lead the way in hiring.

As the city’s unemployment rate declined to 8.7 percent in June from a post-crisis high of over 10 percent, the biggest job gains came in health care, education and businesses depending on a steady flow of tourists into the region.

Among the higher-paying professions, services like law, accounting and management consulting added more jobs than Wall Street did.

Even some of the hardest-hit industries, like construction and real estate, were on the brink of hiring again when the financial markets dived this month after Standard Poor’s downgraded the nation’s credit rating.

“We are actually on the cusp of staffing up again,” said Jeffrey E. Levine, chairman of Levine Builders, a developer of apartment buildings based in Douglaston, Queens. After cutting jobs and rental prices a few years ago, Mr. Levine said, he has kept his staff “lean and mean” through what he called a tremendous turnaround in the city’s real estate market.

As an example, he cited Ohm, a building with more than 400 apartments in the northwestern part of the Manhattan neighborhood Chelsea.

“At the beginning of the Great Recession, we were renting at $54, $55 a foot,” Mr. Levine said. Now, the same apartments are going for about 20 percent more, up to $65 per square foot — or as much as $2,800 a month for a studio.

Mr. Levine attributed New York’s relatively strong rebound to the city’s appeal to young professionals as a place to live and work in, as well as its attractiveness to affluent foreigners for investment in times of global unrest.

“In other parts of the country, my rents are unchanged in three years,” Mr. Levine said, adding that he considered talk of New York City’s falling back into recession “overblown.”

At Bowery Kitchen Supplies, the owner, Howard Nourieli, chalked up the strength of his business to the weakness of the American dollar. Many of the customers buying $150 kitchen knives at his store in Chelsea Market in Manhattan are visitors from South America, he said. On Friday, a cooking-school operator from Argentina spent about $300 on purchases that included a knife made in Japan, Mr. Nourieli said.

The business, which started on the Bowery, once catered to professional cooks and restaurant owners. But its clientele has evolved as the city has drawn more shoppers from other cities and other continents, Mr. Nourieli said. “Tourists are coming and they’re spending money,” he said.

Then, asked if he had any difficulty filling jobs, Mr. Nourieli noted the weakness of the job market. “There’s plenty of people here in New York that can work,” he said. “I haven’t had a problem finding people.”

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