This column should be forecasting a slowdown in the city economy, in line with most of the experts who track New York.
After all, the now seven-year economic expansion would normally be coming to an end—it is unprecedented in duration and strength, as the Independent Budget Office said in late December. Wall Street firms from Morgan Stanley to Citigroup announced year-end layoffs. And signs of trouble are emerging in the real estate markets: Apartment rents have weakened in recent months, and residential developer Toll Brothers is lowering prices and reconfiguring one of its ultraluxury towers, a sign that this small but high-profile sector is headed for problems. Retail rents have softened as well.
Even tourism faces trouble, with a strong dollar making New York more expensive by anywhere from 20% (for Europeans) to more than 50% (for Brazilians).
But I’m going to go against the conventional wisdom and predict another year of record or near-record growth. Here’s why.
Wall Street is highly resilient. As of November, the financial sector had added a surprising 8,000 jobs in the previous 12 months. Although the cutbacks at the big-name firms get all the attention, expansion is the order of the day at hedge funds, private-equity shops and M&A boutiques. Pay is rising again, too. A comprehensive October report from the state comptroller showed that average annual Wall Street compensation topped $400,000 in 2014 for only the second time ever.
It’s a new world because of technology. To understand that the city’s economy has fundamentally changed, look at the very strong job gains in advertising, which is booming because it is at the center of the tech revolution in marketing. That is only one example of the multiplier effect from the robust activity in Silicon Valley.
Construction is still gaining momentum. “Duh,” will say anyone who has walked the city’s streets. Whether it is the mixed-use buildings going up at Hudson Yards or the 50,000 apartments permitted last year (to beat the potential expiration of the 421-a tax break) or the work from the newly financed Metropolitan Transportation Authority capital plan, this crucial sector isguaranteed to grow for the next two or three years.
Tourism may be immune to the dollar’s rise. Despite the decline in foreign currencies, the city set a record for visitors last year. International tourists keep coming because so many hotel rooms have been added that the industry cuts rates to fill them, and that makes the city affordable. Domestic visitors benefit from those discounts as well. Airbnb may just make this state of affairs permanent. This isn’t good for hotel owners but is great for tourists and the city as a whole.
We’ve seen this story before. Cautious economists have spent the past several Decembers suggesting a slowdown was inevitable. At some point they will be right. But not in 2016.