Is New York Recession Ready?

How big is your cheap umbrella?
Photo: Gary Hershorn/Corbis via Getty Images

No, it’s not your imagination: An economic storm is headed for New York, and today’s cloudy skies could turn into a cyclone in the near future. Individual bits of bad news continue to be announced here and there, in ways that have not (yet) sparked widespread concern in New York. Consumers are spending; workers are pressuring their bosses for higher wages and better benefits; and politicians seem determined to avoid talking about looming problems until after the November election.

But a close look at some key data suggests New York families and businesses are about to be hit by rising food and fuel prices, a falling stock market and the looming possibility of a recession. devastating economy.

“The nation as a whole has recovered 95 percent of the jobs lost to the pandemic. We have recovered 74 percent. So we’re way behind the rest of the country,” says Greg David, a writer for The City who spent 35 years in Crain’s New York Business Inform about the local economy. David says Wall Street’s financial sector and the city’s tech sector are taking serious hits that will likely be felt in a few months.

“We have started to see layoffs in the tech sector. I think unless the markets turn around, we’re going to get hit,” David told me. “We haven’t brought jobs back, which are mostly low-wage jobs, tourism-related jobs, retail jobs. And now some of our best-performing industries are going to lose too.”

The share price of Etsy, the Brooklyn-based online retailer, has fallen more than 53 percent in the past year; the company recently announced that it expects a decline in sales. Peloton, the Manhattan-based digital fitness equipment and media company that exploded in popularity during the pandemic, is down more than 87 percent and recently laid off 2,800 employees. Digital media company BuzzFeed went public last December and immediately tanked: The stock has lost more than 56 percent of its initial offering price. Vimeo, the video hosting platform, is down 77 percent compared to last year.

In Queens, shares of airline JetBlue are down more than 47 percent in the past 12 months; the company recently cut its growth plans from 15 percent to 5 percent and made noise last year about moving 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 New York’s “real” economy. 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 in a 12-minute Zoom call.

The mortgage market downturn that contributed to the bloodbath at Better.com is not over: The Federal Reserve, which controls short-term interest rates, has started raising them, knowing that banks will follow suit and raise the price of the loans. for housing, credit cards and business expansion. The specific goal of the Federal Reserve is to make individuals and institutions less likely to invest in homes, apply for a new credit card, or expand their business. This cooling process, also known as demand destruction, is a pretty brutal way of convincing consumers that the price of something they want to buy is simply too high. In theory, if enough people sit on the sidelines and stop buying things (gas, new cars, second homes, restaurant meals), prices will start to fall. With inflation at 40-year highs, that has become the Fed’s main goal.

But the process only works if people cut back on spending. And so far, that’s not happening, according to State Comptroller Tom DiNapoli.

“You know, it’s interesting. We report local sales tax collections. They’re still up significantly, not just compared to last year, but compared to [pre-pandemic] 2019 numbers,” DiNapoli told me. “People keep spending. People are not happy with what they are paying, but they keep spending. You look at the consumers, the consumers haven’t really retired yet. They are not happy, they are nervous about the future, but they continue to spend. In fact, personal income tax revenues coming into the state continue to be higher than projected, month after month.”

That spending is on a collision course with powerful global economic trends and events. In addition to the Federal Reserve raising interest rates, the ongoing war in Ukraine pits the world’s largest exporter of oil, gas and wheat (Russia) against the fifth largest exporter of wheat (Ukraine). We are already seeing record food prices and gasoline is skyrocketing as well. All of that only exacerbates the inflation problem facing consumers and the Federal Reserve.

If that wasn’t bad enough, the situation in China, a COVID outbreak that the government responded to by shutting down major cities, resulted in the closure of factories that make many of the computer chips used to power phones. smartphones, cars and games. consoles The resulting global shortage of all these goods is putting additional upward pressure on prices.

And here in the city, the real estate market is so tight that there are more Airbnb rentals available in the city than normal vacant apartments. Layoffs and a decline in business lunches and dinners 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’s a smart consumer to do?

First, recognize that powerful economic forces, especially the Federal Reserve, can slow the economy down so much that a recession sets in.

“The Fed’s strategy is to slow down the economy to reduce inflation, but without causing a recession,” says David. “This is an incredibly difficult thing to do.”

If the Fed breaks the mark, it could trigger a recession, defined as months, perhaps years, in which hiring and business starts slow to a crawl. 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 some savings for a rainy day that could come in the next 12 months.

Also, think carefully about whether your industry is likely to be exposed in the event of a recession. Many workers in media, real estate, and finance are doing well right now. But the current crash in the stock market means hundreds of billions of dollars are being lost. Sooner or later, that can translate into layoffs.

“My advice is to everyone who thinks they can quit their job tomorrow because a better job is just around the corner: that may be true today. Personally, I don’t think it’s going to be true over time,” says David. “I have given up the idea that the mayor or the governor can control whether people return to office; that’s not going to happen. People are going to come back to the office when the fact that ‘maybe I’m going to lose my job’ occurs to them, because at that moment they think, ‘I can’t be fired’”.

And we should all require that candidates seeking local and federal office submit detailed plans on how they plan to prepare for a potential recession.

The state’s emergency fund, for example, currently has a total of $3.3 billion. While Governor Hochul has projected the reserves will grow to more than $15 billion over the next three years, we don’t yet know how much will be set aside for “economic uncertainties.” He will also have to answer for questionable budget issues like the huge grant he gave the Buffalo Bills for a new stadium. In the event of a recession, such elections will be a source of great anger when the hard times come.

At the local level, city and state controllers have urged Mayor Adams to set standards for funding the city’s newly created emergency 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 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 being able to put aside money now to protect against problems later is difficult for anyone, and especially difficult for politicians in an election year. But extraordinary times call for extraordinary change; in this case, a shift in New York’s political culture toward preparing for an economic hurricane no less destructive than the wild weather brewing offshore this summer.

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