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Experts: City will feel economic crunch

By David Freedlander | dfreedlander@am-ny.com

March 18, 2008

Stocks Volatile On Wall Street Following Recent Financial News

People walk past the New York Stock Exchange on March 17, 2008 in New York City. Stocks are volatile on Wall Street following news of JP Morgan Chase acquisition of Bear, Stearns & Co, for $2 a share, with help of $30 billion in financing of Bear, Stearns assets from the U.S. Federal Reserve. (Michael Nagle, Getty Images / March 18, 2008)

On a day of Wall Street upheaval, New Yorkers awaited the fallout from an accelerating downturn that experts feared could leave no part of city life untouched.

The stunning implosion of Bear Stearns is "the equivalent of manufacturing town where a plant shuts down," said James Brown, labor market analyst at the state Department of Labor, "You're going to feel it."

Indeed, there can be little doubt of that in a city where 20 percent of its wages and salaries come from Wall Street firms, even though those companies employ only 5 percent of the workforce. Wall Street bonuses and wages have accounted for nearly half of the city's growth in its income base since 2003, according to official estimates.

A dip in such an important area could drag down real estate, restaurants, and theaters, not to mention lead to cuts in services as state and city budgets are slashed.

"People become more conservative in their spending habits," said Kathryn Wylde, president of the Partnership for New York City. "People start keeping money under their beds. We're a financial capital, but we're also a shopping capital, a media capital, and there could be a significant impact on a number of industries that are important to New York."

She added that even those with steady, seemingly layoff-proof jobs would likely be hit as well. And more bad news: A big drop in residential rents may not result, and the price of goods and services could soar even as businesses shutter.

"The price of everything keeps going up," said Colbert Cambrian, 32, an accountant at a Wall Street firm. "Gas, energy. It means that profits are not what they used to be."

But a recession is ultimately unlikely to stop the gentrification that has transformed dozens of city neighborhoods.

"I think there will be even more gentrification," said Lawrence White, a professor of economics at the Stern School of Business at New York University. "New York is going to continue to be attractive to a lot of people."

Some cautioned that the best thing to do was to remain clam.

"When the World Trade Center was blown up the effect on the New York economy was really not that severe," said Bryan Caplan, who keeps the "Econolog" blog. "It's a ripple effect, but each ripple gets weaker and weaker. We do live in a $10 trillion economy."

Still, according to a widely-reported calculus, three jobs are dependent on every Wall Street job. Analysts projected that everyone from nonprofit workers to real estate brokers should brace for rough times.

At the center of the storm in the Financial District, there was a palpable sense of dread.

"Grim, grim," said one trader, wincing as he hurried out of the New York Stock Exchange after the closing bell.

amNewYork business editor Garett Sloane contributed to this story.