The Covid-19 quarantines and lockdowns in late March and April threw U.S. business activity and employment into a hole so deep that even rapid growth will take a long while to reach former levels of prosperity. Still, the economic rebound since then has come on with considerably more power than was originally expected. Employment and consumer spending have grown at unprecedented rates. According to Labor Department statistics, some 20 million people lost their jobs in late March and April as the anti-virus strictures went into place; the number of unemployed jumped to over 23 million, or almost 15 percent of the country’s workforce. During the three months since tentative re-openings began in May, about 10 million have either returned to their former job or found other employment.
As of July, the most recent period for which data are available, the number of unemployed stood at 16.3 million, representing 10.2 percent of the nation’s workforce, very high by historic standards but an encouraging improvement. Consumers have poured money into the economy. Spending increased 13.9 percent in May and June, the most recent month for which figures are available; this would amount to a 118 percent increase were it to persist for a year. Wage and salary incomes nationwide, despite still-large numbers of unemployed, have just about recovered the ground lost in March and April.
Perhaps more striking is the willingness of Americans to spend for the future. Homebuying has soared. In the months since April’s lows, sales of residential properties have jumped 58 percent, far exceeding levels early in the year before the anti-virus strictures went into place. Home-construction activity rose some 40 percent during this time, creating some of the noted re-employment. Business orders for new equipment have picked up, rising more than 17 percent during this three-month period. Much of this growth reflects orders for new commercial aircraft, but even excluding this always-volatile element, orders for new equipment have jumped 7.9 percent during this time.
To be sure, the gross domestic product report for the second quarter made for depressing reading—but its 31.7 percent annualized drop in real economic activity said less about the economy’s response to the re-openings than it did about the depressing effect of the lockdowns. The misleading character of this report arises from statistical technicalities. These figures are calculated from quarterly averages, so the deep hole into which the economy fell in April weighed down the second quarter’s average despite the strong recoveries of May and June. It is, however, these May-June gains, and whatever information is available for the summer months, that matter in assessing the economy’s ongoing response to the re-openings. As it stands now, the GDP report for the summer quarter should show impressive growth when it becomes available late in October.
If the national picture looks promising, the economics of New York City are more challenging. On the list of the city’s difficulties, first place goes to Governor Andrew Cuomo’s reluctance to allow a more thorough re-opening in the five boroughs. He may have good reasons for keeping partial quarantines and lockdowns in place, but these strictures unavoidably weigh on the city’s economy. The memory of the city’s brutal experience with the coronavirus will keep residents from fully engaging in economic activity, even when Cuomo decides to lift restraints.
These virus-linked impediments are only a small part of what the city faces as it looks to mount a recovery. Many restaurants and other small businesses have ceased to exist. Since March 1, court filings indicate that some 3,000 small businesses in New York have filed for bankruptcy. That represents only about 1.5 percent of the Census Bureau’s estimate of 215,000 small businesses in the city, but it’s early yet. Insiders warn that as many as a third of restaurants and other small retailers will ultimately fail, permanently threatening some 650,000 jobs—about 15 percent of the 4.6 million people employed in New York City before Covid hit. There is no question that those people, or most of them, will find alternative employment, and new small businesses will take the place of those that have vanished as a result of the pandemic, but that response will take time. In the meantime, the city’s economy will struggle.
These ill effects come in addition to the damage to city landlords, large and small. Estimates suggest that already some 80 percent of the city’s retail and restaurant establishments are behind on rent payments. No rent will come from those that have gone bankrupt. Commercial rents were declining even before the pandemic. By the spring quarter of this year, asking prices in Manhattan’s 16 major retail corridors had fallen below $700 per square foot, lower than any time since 2011, when the city was still clawing its way back from the great recession of 2008. Leasing volumes in the city’s stock of office buildings had fallen 39 percent from last year. This negative trend will gain momentum from impending small-business bankruptcies and the likelihood that the quarantine experience will make remote work arrangements more permanent.
If there were reason in the short term to expect residents and visitors to return, this matter would resolve itself. Lower rents would inspire new businesses to open, while an excess supply of office space might inspire novel and attractive uses for the facilities, even if fewer people than before need to show up in-person at work. These scenarios are not likely to develop soon, though. Empty shops on the avenues and fewer restaurants will dim the allure that once brought tourists and residents into the city. Nor are rent-deprived landlords likely to maintain or update their properties. Service cutbacks by the Metropolitan Transportation Authority (MTA), broke even before the pandemic reduced ridership, will further erode the city’s allure.
If these strains were not enough, the city faces rising rates of crime and homelessness. According to the NYPD, murders have risen over 30 percent. The impression that there are more homeless in the city may be due to the relative lack of other people on the streets these days, but it’s hard to ignore the overwhelming presence of people sleeping on nearly every block. There is no denying that this increased presence detracts from the city’s appeal to residents and visitors.
Migration patterns, even before the pandemic, were not positive. In 2018, the city’s population fell by 0.5 percent, a loss repeated in 2019. This year, of course, the drop figures to be substantially higher.
New York City and State governments have thus lost substantial financial resources with which to work through this crisis. All these trends—lack of business activity; reduced incomes; falling rents; declining population, especially among the wealthy; eroding property values—will continue to constrain city and state revenues. New York City now faces a $9 billion revenue shortfall—about 15 percent of the expected amount. The city has had to cut back on items like garbage pickup, further degrading quality of life. If history is any guide, the de Blasio administration would have squandered any available monies anyway, but the budget constraints now preclude even a hope that the city government could assist an economic turnaround. Indeed, the remedies floated by City Hall—higher taxes on the wealthy and cuts in services—promise only to worsen the city’s economic plight.
New York City has undergone cascading events in 2020 that have imposed formidable adversity. Some of these events originated in nature, with the virus and what seemed an unavoidable public-health response to it. Many others, however, are the result of poor leadership. Of course, New York has battled back from terrible periods before, and it would be foolish to bet against it doing so again. But the city faces strong headwinds in mounting a recovery that much of the rest of the nation has already begun to enjoy.
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