New York is accustomed to job losses on Wall Street. They come with just about every economic slump, and their impact is felt throughout the city.
But now, as the city braces for a big contraction in the financial sector as a result of the credit crisis and the collapse of Bear Stearns, the fallout could be worse than in the past.
The New York economy is more dependent than ever on high Wall Street incomes, which have jumped by more than half since 2001, to an average of $387,000, according to the city comptroller’s office.
Last year, the finance industry was responsible for nearly a third of all wages earned in the city, the highest in modern times. And each Wall Street job supports three workers in other sectors.
A great many of the 14,000 employees of Bear Stearns are expected to lose their jobs because of the firm’s cash shortage and its pending acquisition by JPMorgan Chase. As the credit crisis unfolds and other firms discover the depths of their losses related to bad loans, few expect the layoffs to stop there.
“Up to this point in New York City, the material result of the credit crunch hasn’t been felt as quickly as people were expecting,” said Marcia Van Wagner, deputy comptroller for the budget of New York City. “It took a while for the other shoe to drop.”
Indeed, even though economists say this slowdown started in the financial sector, New York has felt little of its pain. For example, real estate prices have largely held steady in the metropolitan area even as they have plummeted in other regions.
Now there are signs of nervousness, and not just among bankers and traders. Some prospective buyers in the pricey condominium market have put their plans on hold. Companies like SeamlessWeb, which delivers food to financial firms, are reconsidering plans to hire more staff. A newsstand operator across from the New York Stock Exchange greeted his customers last week by saying, “It will be O.K.”
Analysts are predicting wider cuts across the industry, even among workers who had nothing to do with mortgages. A UBS analyst, Glenn Schorr, said the major banks had already cut 5 to 10 percent of their work forces, and he said he expected them to make cuts on a similar scale again in the next few months.
“It’s fair to, unfortunately, expect another wave of cuts as they batten down the hatches,” said Mr. Schorr, who covers several major banks.
Some New York-area residents are becoming more cautious with their spending decisions.
Last month, Shai Shustik, a broker with Manhattan Residential, was helping a 27-year-old client find a $700,000 one-bedroom apartment on the East Side of Manhattan. But then the client suddenly put her search on hold. Her father, a banker, said he had lost too much money in the stock market to buy such an apartment for her.
Until two weeks ago, Mr. Shustik was also working with a Credit Suisse banker who wanted to spend up to $1.6 million for a one-bedroom apartment in the West Village or TriBeCa neighborhoods of Manhattan. The banker abruptly stopped his apartment search because he was too concerned about the stock market and his future bonus potential.
Last Tuesday, a woman picking at her salad in Grand Central Terminal said her husband, who works at a competitor of Bear Stearns, feared the trouble would spread.
“He’s worried,” said the woman, Emilie Bosak, a stay-at-home mother. “Most people in finance are worried.”
That worry has been building since last summer, just after two hedge funds within Bear Stearns collapsed and the mortgage markets were beginning to freeze. Employment at securities firms in New York had rebounded since the 2001 recession and was nearing its all-time peak of 200,000 from before that downturn, according to the Securities Industry and Financial Markets Association, a trade group.
Since August, the financial industry has gradually shed at least 20,000 jobs, mostly among those selling loans, those bundling loans into complex securities and those placing trading bets on the likelihood that borrowers would pay.
Now the pace of job losses is increasing. Significant cuts at Bear Stearns are almost certain. Citigroup is in the process of cutting 10 percent of the work force in its investment bank, or 6,000 people. Lehman Brothers announced 1,400 layoffs two weeks ago.
Goldman Sachs said in January that it would reduce its global work force by 5 percent. On Friday, The New York Post reported that the cuts would rise to 20 percent, which would bring the total cut to 6,400 jobs. A spokeswoman for Goldman had no comment on the report.
“There will be more cutbacks because basically the business is not there,” said Richard X. Bove, a managing director at Punk, Ziegel & Company, an investment firm.
The last time Wall Street had a similar contraction was after the technology bubble burst seven years ago. At that time, financial firms cut 60,000 jobs in the New York City area, or 1 in every 10 finance positions, according to Moody’s Economy.com.
But those cuts were rapid, and this downturn strikes some people as more similar to the slow bleeding that occurred on Wall Street from 1987 to 1993, when 100,000 people in the New York area — 15 percent of finance workers — lost their jobs, according to Economy.com.
