New York’s banks and investment firms are doing great. New York’s economy, not so much.
Usually, the two move in tandem. This odd “decoupling” is yet another ominous sign for Gotham’s future and yet another headache for the incoming mayor.
Last week, the city’s biggest banks released their earnings — and everything (or almost everything) was wonderful. JPMorgan Chase’s quarterly profit rose by nearly a quarter, to $11.7 billion. Citigroup made $4.6 billion, a 48 percent increase. Morgan Stanley, Bank of America — all did well.
You might think that’s because last year was such a disaster. But it wasn’t. Thanks to record federal aid to families and small businesses, people stayed current on their bills and kept spending. Thanks to cheap interest rates, companies kept borrowing money to merge with other companies. As state Comptroller Tom DiNapoli said of 2020, “Wall Street’s near-record year shattered all expectations.”
Still true. Investment banks are reaping record merger and acquisition fees, and Americans are once again paying to borrow money.
But: If you just looked at New York’s jobs figures, and not at the news on bank earnings, you wouldn’t know any of this.
As of August, the city’s financial-industry jobs (not including real estate) were down 5 percent, to 338,800, compared with pre-COVID August 2019. Commercial-banking jobs are down 7 percent, to 67,300. Investment-related jobs are also down 7 percent, to 177,600.
If we weren’t distracted by huge, double-digit percentage losses in other parts of the city’s economy, like arts and entertainment, these would be big numbers. Between 2007 and 2009, the investment industry lost 14 percent of its jobs, sure. But that was an existential crisis that put many firms out of business or made them wards of the state (and jobs never fully recovered).
Some of these latest job losses are because banks, even with the profits flowing, are paying a lot of attention to costs. Executives are worried about inflation, which could make it harder for companies to borrow money for mergers. There’s lots of talk about automating the work that junior investment bankers do.
But make no mistake: Some of this job destruction is a gain for other states. In Florida, financial jobs (again, not including real estate) are up 6 percent since August 2019, to 422,000. This month, yet another small investment firm, ARK, said it would close its New York headquarters and move to St. Petersburg, with most of its dozens of workers going.
The see-no-problem-here Gotham boosters may hoot at the idea of the loss of “dozens” of staff. But smaller firms are nimbler and can act more quickly than giant behemoths like Citi and Chase.
New York is seeing this shift in its tax revenues, as well. As the City Council’s finance division quietly noted this month, “All of the progress made by the job market has hit a snag over the past two months.” Construction, retail and white-collar jobs “have all experienced sizable drops in payroll positions” since June.
The local recovery may have stalled out — with nearly 11 percent of Gotham’s pre-COVID 4 million private-sector jobs still missing. “The city is now facing a new long-term challenge from employers and workers permanently choosing remote work, allowing workers to move out of the city or just stay at home and consume less. This is a potential shock wave,” notes the council’s finance staff.
Remember, the city slashed its forecast for tax collections this year, as commercial real-estate values fell thanks to too few people working at their offices. But tax collections aren’t even meeting those lowered estimates: For the first two months of this new fiscal year, the council says, tax collections are down more than $100 million compared to last year.
What does this mean when New York faces a $4.1 billion budget deficit next year, or 6 percent of total tax revenues, and with extraordinary federal aid — both to people and to local governments — running out?
Our current mayor won’t be around to find out. The next mayor, though, has to be worried already. We used to fret about what happened when Wall Street crashed; now, we should fret that we have these woes when Wall Street hasn’t crashed.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
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