Although Wall Street firms employ only 5 percent of workers in New York City, they account for 20 percent of the city's total wages and salaries. Any ups or downs in the financial district can subsequently create a ripple effect elsewhere, seeping unsteadiness and insecurity into the pockets of New Yorkers citywide, from real estate brokers to waiters.
The End of an Era?
As the stock market dives and climbs, plummets and rallies, city financial experts and officials cannot help but ponder what effects that could have on the city's overall economy and the city government's upbeat fiscal outlook.
Some fear the current turmoil could end a rosy economic era that featured billions in budget surpluses, which enabled the city to cut taxes it had raised during a recession earlier in the decade.
"People have gotten used to, in the last several years, for every year to be better than the last," said Marcia J. Van Wagner, the city's deputy comptroller for budget. "I think what is going to happen here, as the economy turns a little bit, we're going to have to get out of the habit of thinking that way."
The Bloomberg administration, the city's Independent Budget Office and the city comptroller's office all expected an economic slowdown even before the recent dives. The Bloomberg administration’s decision to use some $2.3 billion in this year's budget to cover debt service in future years, Van Wagner said, could offer some initial protection. Although it is still too early to speculate on future fallouts from the market, Van Wagner added that any concern should not be directed toward this calendar year, but the next.
Wall Street's Reach
The city relies on revenues received from Wall Street. Bonuses alone last year, estimated Van Wagner, contributed $20 billion to the city's economy. These bonuses, Wall Street wages and capital gains have accounted for nearly half of the state's growth in its income tax base since 2003.
The market's swings - sparked by a so-called crisis in the sub-prime mortgage market and subsequent credit crunch (see related stories below) â€“ could affect other industries as well. Sales of luxury items could decrease, New York City's soaring housing market could sink, nonprofit organizations could have difficulty fundraising, brokers could lose their jobs and gourmets might find it easier to get a table at exclusive restaurants, said city officials.
However, Van Wagner said, there is no reason to panic. "There are certain people who have jobs in certain parts of Wall Street that have every reason to be worried right now," said Van Wagner. "For New York City residents in general, I don't think they should be alarmed at the moment."
Predicting the Future
That should officials watch for? City officials said they would turn to business tax returns due at the end of the month as an economic indicator. They will also keep an eye on layoffs. Employment growth is another indicator to watch. The comptroller's office projected that employment in the city would grow by 50,000 jobs this year, and it has already increased by 54,000, Van Wagner said.
Nationally, however, employment dropped in August for the first time in four years. On Friday, an employment report revealed the country had a net job loss of 4,000 last month, despite economists' predictions of more than a 100,000 gain. The stock market's drop in response indicated how national economic developments could affect New York's financial workforce and eventually the wider city economy.
In the months to come, New York City definitely will see a slowdown in its economy, said Doug Turetsky of the city's Independent Budget Office. How bad it is or whether it's better than previous estimates, remains to be seen, he added.
"The city is still very dependent on the financial services sector," said Turetsky. "It's still the main driver of the New York City economy. We haven't had the kind of diversification that people have talked about that would help the city insulate from the cyclical downward trend that Wall Street goes through."
Others are not so pessimistic. James Parrott of the Fiscal Policy Institute wrote in Gotham Gazette that Wall Street would have to go into a “sustained slump” for city economy to suffer a serious downturn. “Many other parts of the economy should continue to generate jobs and economic stimulus â€“ even if the stock market gets the jitters,” Parrott said.
Whatever happens in the long run though, the coming days promise to be anxious ones on Wall Street as experts try to figure out whether August’s job loss represented a one-month glitch or an early sign of a looming recession. And as long as there are jitters on Wall Street, there promise to be some restless moments in City Hall as well.
Also this week:
--Charles Geisst, a professor of finance at Manhattan College, predicts real estate brokers are likely to see prices fall as a result of turmoil on Wall Street and in the national housing market.
--New York City-based credit risk analyst Rebecca Jones explains the foreclosure crisis and looks at whether â€“ and how â€“ it affects New York City.
Related coverage in Gotham Gazette:
Wall Street, Calm City? (April 16, 2007)
by James Parrott
Even though New York remains heavily dependent on Wall Street, other sectors of the local economy continue to remain strong.
â€˘ Neighborhoods and the Fiscal Boom (August 2007)
by James Parrott
The economy's surge on a citywide scale has boosted tax revenues, but some communities have not felt the full effects of the good times.
â€˘ Looking at the Four-Year Financial Plan (August 2007)
by Glenn Pasanen
How the city plans on spending its money â€“ including all those surpluses -- over the next several years.
â€˘ Behind the Low Unemployment Rate (May 2007)
by James Parrott
Why the city’s jobless rate has reached an all-time low.
â€˘ Wall Street Bonus Babies (January 2005)
by Andrew Beveridge
Who gets Wall Street's record-breaking bonuses.