New York City Feels the Brunt of Wall Street's Crisis

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A shopper inspects HD televisions in a Circuit City store in New York City

Restaurateur Danny Meyer expects to sell more French fries and less foie gras. Meyer, who owns seven New York City eateries, says lines are longer than ever at his Shake Shack. But business is off 5% at two of his nearby, higher-end eateries, both of which are on the first floor of the New York headquarters of financial firm Credit Suisse. One of the restaurants, Eleven Madison Park, features a duck-liver terrine with pineapple and pearl onions on a rum-raisin brioche. The appetizer costs an additional $20 on top of the restaurant's normal $88 tasting menu. But few are buying. "I call it the AIG effect," says Meyer. "Even if you haven't lost your job, you don't want to been seen as extravagant."

Meyer's restaurants are not alone. A survey released Friday morning shows businesses around the New York City area are already feeling the pinch of Wall Street's recent downturn. The survey, conducted by the local chapter of the National Association of Purchasing Management, found that business managers believe the Big Apple's economic conditions have deteriorated 21% from just three months ago, to an index level of 35.6. Any reading below 50 means the city's economy is contracting. The index stood at 59 just a year ago. "Managers say business conditions are bad and will stay that way for at least the next six months," says Jonathan Basile, a Credit Suisse economist who compiles data for the survey.

For much of this year, New York City has largely avoided the economic downturn that has hit a good portion of the rest of the country. Unemployment is still a mild 5.8%, compared with 6.1% nationally. That's because many of the problems the U.S. economy has run into — plunging housing prices, rising foreclosures, shrinking auto industry jobs — are mostly absent in New York City.

Now that seems to be changing. Realtors say housing prices are finally dropping and apartments are going vacant. Moreover, a number of large New York City firms have announced layoffs. Retailers are bracing for things to get much worse. "Cigars are a celebratory medium," says Richard Hu, who owns Wall Street Humidor, a cigar shop in lower Manhattan. "And I guess there's just not that much to celebrate these days."

On the plus side, Wall Street firms are expected to pay out $14 billion in year-end bonuses this year. It's still a lot, and most likely much more than what the firms would have paid out had the government not decided to bail out the financial sector. But bonus pay is down just over $19 billion from a year ago. What's more, Brad Hintz, an analyst at money manager Sanford Bernstein, predicts Wall Street employment will drop from its mid-July peak by around 43,000 employees by the end of next year.

Frank Bruconi, chief economist in the New York City comptroller's office, estimates that lower Wall Street pay and payrolls will reduce the city's income tax revenue by $368 million alone. Then there's the ripple effect. Many other types of companies throughout the city, from law firms and accountants to corporate-car services and dry cleaners, rely on Wall Street companies and their employees for business. Bruconi says the general rule is that one job cut on Wall Street usually results in a reduction of a job and a half elsewhere in the N.Y.C. economy. All told, local economists predict that New York City could lose as many as 160,000 jobs.

Retailers, particularly those who cater to Wall Street, are already feeling a downturn. Hu says customers have downscaled their stogies and are increasingly asking for Rocky Patels, which can cost as little as $5 a cigar. Back in 2006, Hu says, the hot sellers were Opus X Fuentes, which can cost as much as $35, or $500 by the box. "Sales are off 30%," says Hu.

The pain is hitting real estate too. Hamptons realty agent Rick Hoffman of Corcoran says his market usually gets an infusion of Wall Street money this time of year — thanks to the bonus payouts — but he isn't expecting a pickup in slow sales anytime soon. He says he is seeing the weakest prices in years on the east end of Long Island, where Wall Streeters have traditionally bought their weekend homes. For example, last week a seller dropped the price on a five-bedroom, 6 1/2–bath, 7,000-sq.-ft. home, located on an acre of land, to just under $3.3 million, down $450,000 from its original asking price in July. "Owners are more motivated to sell than in past market downturns," says Hoffman.

And the pain is spreading well beyond the Big Apple. According to the Securities Industry and Financial Markets Association, these days only 21% of all so-called Wall Street jobs are based in New York City, down from 38% three decades ago. Stamford, Conn., mayor Dannel Malloy says his city is sure to suffer from Wall Street's swoon. In the past few years, a number of large financial firms, including UBS, have moved thousands of investment-banking and trading jobs to the city. Already, a proposed Ritz-Carlton hotel and convention center has been put on hold, and city officials are afraid a large financial firm that was looking to rent 10,000 sq. ft. downtown will pull out as well. "Clearly we will see some softening," says Malloy. "Although as a lower-cost alternative for the financial-services industry, we will probably not be as adversely affected as New York."

Manhattan matchmaker Janis Spindel says more and more of her clients, typically Wall Street males, are trying to bargain, asking her to reduce her fee, which can run as much as $250,000 to find a wife. One client recently told her he thinks he will have to mothball his Gulfstream and start flying commercial. Spindel, though, isn't negotiating. In fact, she says her business is as busy as ever, though more and more of her clients are coming from outside the New York City area. "I guess one would say that hiring me is a luxury good, but people don't want to be alone, particularly now," says Spindel. "The market for love never dies, not even in this economy."

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