Economic Outlook
NYC Economy’s Uneven as Full Recovery Remains Elusive
By MICHAEL PATON
NEW YORK—In its annual review of the New York City’s economy and finances, the city’s Office of Management and Budget found that the city’s economic recovery was uneven in 2022. According to the report, the city’s labor market in the first half of 2022 remained resilient, with employment growth outpacing both the state and the nation. However, with the Federal Reserve tightening interest rates, local employment growth slowed in the second half of the 2022. In addition, higher interest rates were responsible for the residential real estate market weakening in the second half of the year, while remote work continued to slow a commercial real estate recovery.
The New York City labor market continues to gradually recover from the COVID-19 pandemic. Toward the end of 2022, the city’s economy recovered about 90% of the jobs lost in March and April of 2020. In the first 11 months of 2022, the city added 189,000 positions—more than twice the average for the same period in most years prior to the pandemic. During the shutdowns implemented in
the spring of 2020 to slow the spread of COVID-19, employment sectors that rely heavily on in-person interactions (leisure & hospitality, construction, manufacturing, trade and transportation & utilities) suffered high rates of job loss.
From February to April 2020, more than 40% of employees working in these sectors were laid off. As restrictions relaxed, these sectors came back and added jobs at an impressive pace. From April 2020 to November 2022, employment in this group of sectors expanded by 507,000 jobs. Also, as the economy reopened, consumers shifted their spending toward services such as travel. In 2022 the visitor count to New York City is projected by OMB to be more than 70% above 2021 levels.
The construction sector’s post-pandemic employment recovery weakness is probably the result of rising interest rate and high material prices that have hampered activity in the construction industry. City economists project that construction employment will further contract by 1% between 2022 and 2023, before resuming a positive growth trend.
New York City’s residential market also is showing signs of deceleration. In the face of rising interest rates, weak financial markets and a potential economic downturn, home sales in New York City slowed in the second half of 2022. According to data provided by the New York City Department of Finance and reported by OMB, home sales in the city have slowed on an annual basis for five straight quarters and had slumped to 17% below year-ago levels in the third quarter of 2022. By housing type, condo sales declined by 24% year-to-year in the third quarter; single-family home sales fell by 15%; and co-op sales decreased by 12%.
The city’s commercial office market continues to be weakened by the transition to remote and hybrid work. Moreover, due to the long-term nature of office leases, the transition is likely to take many years to complete as employers wait for their current leases to expire before signing new contracts that account for their fully remote and hybrid workers. According to a survey released last September by the Partnership for New York city, 22% of companies expect to reduce their New York City real estate footprint in the next five years, while 20% expect to expand their workforce. The discrepancy between employers’ expectations for office space and for hiring has implications for the city’s office market outlook, as it signifies that remote work has permanently reduced long-term demand for office space.
About the author: Michael J. Paton is a portfolio manager at Tocqueville Asset Management L.P. He joined Tocqueville in 2004. He manages balanced portfolios and is a member of the fixed-income team. He can be reached at (212) 698-0800 or by email at [email protected].