No, it’s not your imagination: An economic storm is heading toward New York, and the cloudy skies today could be a cyclone in the near future. Individual bits of bad news keep getting announced here and there, in ways that haven’t (yet) stirred widespread worry in New York. Consumers are spending; workers are pressing their bosses for more pay and better benefits, and politicians seem determined to avoid talking about the problems that lie ahead until after the November elections.
But a close look at some key data suggests that New York families and companies are about to get walloped by rising food and fuel prices, a slumping stock market, and the looming possibility of a devastating economic recession.
“The nation as a whole has recovered 95 percent of the jobs lost in the pandemic. We’ve recovered 74 percent. So we’re way behind the rest of the country,” says Greg David, a writer at The City who spent 35 years at Crain’s New York Business reporting on the local economy. David says that the Wall Street financial sector and the city’s tech sector are currently taking serious hits that will likely be felt in a few months.
“We’ve begun to see layoffs in the tech sector. I think unless the markets turn around, we’re going to be hit,” David told me. “We haven’t recovered the jobs, which are primarily low-wage, tourism-related jobs, retail jobs. And now some of our best-performing industries are going to lose, too.”
The stock price of Brooklyn-based Etsy, the online-retail operator, has fallen more than 53 percent over the last year; the company recently announced it expects a decline in sales. Peloton, the Manhattan-based digital exercise equipment and media company that exploded in popularity during the pandemic is down over 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 off 77 percent compared to last year.
In Queens, JetBlue airline’s stock is down more than 47 percent in the last 12 months; the company recently cut back its growth plans from 15 percent to 5 percent and last year made noises about moving most or all of its 1,300 headquarters jobs to Florida.
The mounting financial bloodbath on Wall Street and in the tech sector will eventually be felt throughout the “real” economy in New York. Layoffs are an obvious measure of distress: Just ask any of the ex-employees of Better.com, a mortgage lender based at the World Trade Center that fired 900 workers a few weeks ago on a Zoom call that lasted all of 12 minutes.
The slowing of the mortgage market that contributed to the bloodbath at Better.com is not over: The Federal Reserve, which controls short-term interest rates, has begun raising them, knowing that banks will follow suit and ratchet up the price of borrowing 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 process of cooling off — also known as demand destruction — is a fairly brutal way of convincing consumers that the price of a thing they want to buy is simply too high. In theory, if enough people stay on the sidelines and stop buying stuff — gasoline, new cars, second homes, restaurant meals — prices will start to come down. With inflation at 40-year highs, that has become the Fed’s primary 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’re still up significantly — not only compared to last year, but compared to [pre-pandemic] 2019 numbers,” DiNapoli told me. “People are still spending. People aren’t happy about what they’re paying, but people are still spending. You look at consumers, the consumers really haven’t pulled back yet. They’re not happy, they’re nervous about the future, but they’re still spending. In fact, personal income-tax revenue coming to the state continues 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’s ratcheting up of 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’re already seeing record-high food prices and gasoline is spiking, too. All of that just exacerbates the inflation problem that consumers — and the Fed — are facing.
If that wasn’t bad enough, the situation in China — a COVID outbreak the government has answered with a shutdown of major cities — resulted in a shutdown of the factories that make many of the computer chips used to power smartphones, automobiles, and gaming consoles. The resulting global shortages of all those goods are putting 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 business lunches and dinners have contributed to the estimated 1,000 restaurants closed 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 the powerful economic forces — especially the Federal Reserve — can easily slow the economy down so much that a recession results.
“The Fed strategy is to slow the economy to reduce inflation, but without causing a recession,” says David. “This is an incredibly hard thing to do.”
If the Fed does overshoot the mark, it could trigger a recession, defined as months — perhaps years — in which hiring and business openings would slow to a crawl. In a worst-case scenario, called stagflation, prices stay high even as business activity slows. If you have discretionary purchases that can wait, it might be best to sock away some savings for the rainy day that might arrive in the next 12 months.
Also, think carefully about whether your sector is likely to be exposed in the event of a recession. Many workers in media, real estate, and finance are doing fine right now. But the current plunge 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 around the corner: That may be true today. I don’t personally think it’s going to be true in time,” says David. “I’ve given up on the idea that the mayor or the governor can control whether people go back to the office — it’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’ enters their mind, because at the moment they think, ‘I can’t be fired.’”
And we should all demand that the candidates seeking local and federal office put forward detailed plans on how they plan to prepare for a possible downturn.
The state’s rainy-day fund, for instance, currently has a total of $3.3 billion. While Governor Hochul has projected the reserves will increase to more than $15 billion in 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 like the huge subsidy she handed to the Buffalo Bills for a new stadium. In the event of a recession, such choices will be a source of great anger when the hard times arrive.
At the local level, the city and state comptrollers have both urged Mayor Adams to establish standards for funding the city’s newly created rainy-day fund. “With rising inflation, still-too-high unemployment, 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 put aside $2.5 billion, far more than the $700 million the mayor allocated in his executive budget.
Failing to put aside money now to protect against problems later is hard for anybody, and especially tricky for politicians in an election year. But extraordinary times call for extraordinary change — in this case, a change in New York’s political culture toward preparing for an economic hurricane no less destructive than the wild weather forming offshore this summer.