New York Federal Reserve Bank economists said that while the worst of the recession in New York and New Jersey may be over, a recovery in the region’s economy will probably lag the national trend.
“A downsizing of the area’s critical financial sector could pose a major risk to the economic outlook going forward, particularly for New York City,” the economists said in a paper posted on the New York Fed’s Web site.
Consolidation and restructuring among financial firms, along with possible regulatory changes that could limit the size of firms, their business lines and pay structure, “have the potential to dramatically reshape this sector” and slow a recovery, the district bank economists said.
The bank’s regional studies group constructed a coincident economic indicator comprising payrolls, unemployment, earnings and hours worked to calculate the impact of the recession on New York City, New York state and New Jersey.
Once the regional economy began to decline, the near collapse of the financial system had a “severe” effect, the economists found. In New York City, the economy contracted 4.9 percent in the twelve months to June. In New York state, the contraction was 5.7 percent, and in New Jersey, 5 percent.
Financial services account for about 12 percent of New York City’s employment, and as much as 30 percent of total wages, the bank said. Each Wall Street job is estimated to generate two additional jobs in the city supporting the industry, including advertising, restaurants or real estate.
The economists count a total of 42,000 financial jobs lost in New York City from early 2008 to July 2009. New Jersey has lost 25,000 jobs in the financial industry since September 2005.
“Job losses in the city’s securities industry have a disproportionate impact on the region’s total activity,” the economists’ report said.