Big Apple's Economy: Rocked to the Core

Huge losses in jobs and revenues and the massive challenge of rebuilding means it could be years before New York City recovers

In Times Square, nobody was shopping. Hours after the attack on the World Trade Center, the tourists were too afraid. "Half the people in the hotel were completely panicked," said Charles Velez, a concierge at the neighborhood's DoubleTree Hotel. "They didn't even want to go outside." On the door of the adjacent Palace Theater hung a loose-leaf paper sign: "Due to today's tragedy, tonight's performance of Aida is canceled." Broadway was dark the next day as well.

The terrorist attack brought the city's economy to a halt, and it may be some time before it revives. "New York depends so much on its flows -- people, goods, services," says Steven G. Cochrane, a regional economist at researcher Inc."It's such a hub. But right now, it's an isolated island, completely cut off." As a result, Cochrane thinks almost every major New York industry will be hurt: tourism, financial services, retailing, and real estate.


  Tourism will take the most immediate hit. New York & Co., which promotes tourism, estimated that 38 million visited the Big Apple last year, spending $17 billion and supporting 282,000 jobs. Hotel vacancies had already been climbing this year as hoteliers added 3,500 new rooms and the economy softened. Convention-planning agencies say they're getting panicked calls about upcoming conventions, but so far, none have been canceled.

Damage to the financial services industry -- with 522,000 workers, the city's No.1 employer -- may be severe. Brokerage earnings will take an immediate hit because of the Wall Street hutdown. "Even when trading desks do reopen, financial transactions will be drastically reduced," says Ross C. DeVol, regional economist at the Milken Institute, an economic think tank in Santa Monica, Calif. "The people who assist the traders will have a hard time getting to work." The entire sector contributed $207.5 billion to the city's $444.4 billion in output last year.


  Already, the Big Apple's economy was slowing after a decade of robust growth. Before the attacks, forecast that the growth in the 4 million-plus workforce would sink from a brisk 2.6% rate in 2000 to just 1.3% this year because of layoffs at brokerage firms and banks. It put likely 2002 employment growth at 0.9%. Coming ahead of the Thanksgiving-Christmas season, when the retail and tourist industries book a large chunk of their business, the attacks may cost thousands of jobs. "Who's going to want to travel to New York now to see a show or shop at Bloomingdale's?" asks Cochrane.

The business loss will also deplete New York's tax coffers. According to the city comptroller's office, in fiscal 2000, the last year for which data is available, the city's total tax revenues grew 5.7%, to $22.5 billion. Some $3.5 billion came from sales taxes at retailers and tourist attractions. An additional $5.4 billion was collected in personal income tax.

"Of that personal income tax, 15% came from Wall Street employees, much of it from big yearend bonuses" says Ronald H. Fielding, a New York municipal bond fund manager at Oppenheimer Funds. Because of smaller bonuses and lower sales, he expects fiscal 2001's revenues to be flat. But with Wall Street and tourism hard hit, the coming 12 months could be much worse.


  Sadly, the only sector that could actually benefit from this disaster is real estate. According to the Real Estate Board of New York, the World Trade Center had 9.5 million square feet of office space out of a total 360 million in Manhattan. That means 2.6% of New York's office space is off the market. With just an 8% office vacancy rate, that's a significant number. Businesses desperate for a new home will have to pay a premium. Prime Manhattan office space was already at $65 a square foot before the disaster, but a spokesperson at real estate manager Cushman & Wakefield says that the firm now has "dozens of clients looking for space."

Longer-term, however, New York's commercial real estate market could suffer. "It used to be good for business to be in a high-profile building in New York," says Leo Wells, president of Wells Real Estate Funds. "Now, it makes you an easy target." The danger is that companies might find their temporary quarters outside New York more to their liking -- and never come back.

By Lewis Braham, with Michelle Conlin, Tom Lowry, Susan Scherreik, and Anne Tergesen, in New York