With Inflation, Tight Credit, and Unease About Presidential Politics, New York’s Job Growth Is in a Holding Pattern
The rate of New York City job growth slowed slightly in recent months but continues at pace with national payroll job growth. Over the past year, the city’s total job growth was 1.2 percent, about one-third of the pace recorded from May 2022 to May 2023.
Health care and social assistance job growth has been strongest at 20 percent since the pandemic, facilitated by health insurance spending and government contracts to deliver services to New Yorkers in need. Finance and Insurance records the second-best job growth at 5.2 percent.
In New York City, manufacturing, construction, and retail trade experienced the greatest job loss since the pandemic. This trend has been exacerbated by a high interest rate environment.
Locally and nationally, consumer expectations about continued high inflation and tighter credit conditions likely foreshadow continued weak job growth. New Yorkers remain worried about the high cost of food and housing in particular.
The rate of New York City job growth slowed slightly in recent months, with the city adding an average of 4,500 jobs in both April and May when seasonally adjusted. Over the past year, the city’s total job growth was 1.2 percent, about one-third of the pace recorded from May 2022 to May 2023. While New York City’s job growth remains in line with national payroll job growth in 2024, the Federal Reserve’s contractionary monetary policy puts downward pressure on investment and consumer demand, which may be slowing job growth in industries particularly sensitive to debt financing.
Figure 1 illustrates the latest seasonally adjusted data on job growth released on June 21, 2024. It shows that manufacturing, construction, and retail trade have incurred the largest job losses in New York City since February 2020, with declines of 14.2 percent, 14.7 percent, and 13.4 percent, respectively. While other factors – such as supply chain disruption and e-commerce competition – have contributed to the job declines in manufacturing and retail trade, a high interest rate environment has likely also restrained job growth. This effect is also observed at the national level, where both sectors saw their job creation grow by only one percent since February 2020. Growth prospects for both sectors remain bleak at the national level. For retail trade, federal Bureau of Labor Statistics (BLS) estimates project a two percent job decline by 2032. For manufacturing, firms in the US have reduced their investment due to high interest rates.
High levels of inflation pushed the Federal Reserve to increase its average federal funds interest rate in the past three quarters, rising from 4.65 percent in March 2023 to 5.33 percent in May 2024, its highest level in 23 years. On June 12, the Federal Reserve left its federal funds rate unchanged and signaled there may be only one rate cut in 2024. This high interest rate environment reduces firms’ financial capacity to engage in new capital investment, thereby slowing down production and job creation in sectors that are particularly interest-sensitive.
However, despite these challenging financial conditions, construction job creation has grown by eight percent nationally since February 2020. This contrasts with the significant decline of construction jobs in New York City. The high vacancy rate of commercial real estate, which has doubled since 2020 and reached 12.8 percent in May 2024, has constrained construction in New York City, which decreases demand for labor.
Job growth has been strongest in healthcare and social assistance, followed by the finance and insurance sector. As of May 2024, there had been a 20 percent increase in jobs in healthcare and social assistance – resulting in over 166,000 new jobs since before the pandemic. Almost half (47 percent) of new jobs in healthcare and social assistance are in home health care services, most of which are Medicaid-funded. One-third of growth in this sector has also been in the BLS’s broad category “Individual and Family Services and Community Food and Housing, and Emergency and Other Relief Services” industries. Growth in these industries has been facilitated by government contracts, largely with non-profit agencies, to deliver services to New Yorkers in need. Public policy, therefore, has an impact on job quality in these growing industries where there is also well-documented low pay.
New York City’s seasonally adjusted unemployment rate held at 4.8 percent in May. This is still far from its pre-pandemic unemployment rate of 4.0 percent. However, combined with a growing labor force participation rate, this steady unemployment rate does also indicate that city residents are benefiting from local job growth in recent months.
Additional economic growth and job creation is needed to ensure that the estimated 200,000 residents who were unemployed in May 2024 are not left behind. However, growth prospects might be jeopardized by rising income inequality and declining consumer confidence. A recent pool of surveys indicates that American households feel pessimistic and worried about the prospect of economic growth. The uncertainty surrounding the outcome of the upcoming presidential election may further exacerbate such pessimism. Some economists have ascribed this current uneasiness to the long-lasting traumatic effects of Covid and the amplifying effect of negative feelings expressed on social media. The Federal Reserve’s monetary policy has likely generated more uncertainty among households’ expectations, which could also explain the overall pessimism. In a Siena College Poll covering the first quarter of 2024, New York State residents’ sentiment about the future was optimistic and higher than the national level (79.8 compared to 77.4). However, households with annual incomes below $50,000, registered a more pessimistic 75.2 level. This divergence suggests the impact of income inequality.
The New York Federal Reserve’s recent Survey of Consumer Expectations highlights the prospects of a decline in consumer spending. It reveals that US households expect credit conditions to be tighter a year from now. This could encourage high-income earners to increase their savings. As a result, demand-driven job growth is likely to slow down. This national sentiment is also observable at the regional and local level. In New York State, even though there was a slight increase in consumer spending in May, new car sales decreased due to high interest rates on auto loans.
The New York City metro area Index of Consumer Sentiment’s current score decreased to 73.1 in the first quarter of 2024, down from 77.7 in the fourth quarter of 2023. It remains lower than its pre-pandemic local level (96.6) and well below the current national level (82.5). It also still leans towards pessimism. Sixty-seven percent of New York State consumers surveyed expressed concern about housing costs. New York City residents were also surveyed specifically about the high cost of food, with 77 percent saying that food costs have a very serious or somewhat serious impact on their financial conditions.
To summarize: In many respects, the current economic outlook in New York continues to broadly track that of the nation. However, the city’s current economic situation is different from the nation’s with higher unemployment than before the pandemic. Therefore, there is still a need for City and State government to work with the private sector to implement strategies to facilitate more growth.