The coronavirus crisis is shrinking New York City’s economy on a scale far more vast than the squeeze on any other U.S. metropolis. The Big Apple so exceeds the rest of urban America in damage suffered mostly because it’s the epicenter of the outbreak and also because an extremely high proportion of its workforce is employed in restaurants, bars, hotels, theaters, and retail, all businesses hyper-vulnerable to the collapse in tourism that has pounded the world’s most visited destination.
Still, New York isn’t just getting hit hardest because of the virus’s big early onslaught and the mix of fragile industries. The New York State and City governments are helping sharpen the sharpest-of-all contractions by imposing the toughest, tightest, longest-standing shutdown in America.
The state and city are sticking to the latest-starting, most extended reopening schedule in the nation even though New York began making astounding gains in the reduction of COVID-19 cases in mid-April, and came extremely close to satisfying nearly all the high hurdles for a reboot weeks ago. That ultracautious approach may well be the right choice for saving lives and preventing another spike in infections.
Still, it’s worth asking: How much of a bite is the lockdown taking from the previously thriving New York economy? And how much “bang for the buck” is the city getting measured in the commerce it’s sacrificing for what look like relatively small improvements in health metrics?
The city and state maintained a strict shutdown as the city closed in on all the metrics for reopening, so the economy has already shouldered significant extra costs to reach small improvements. The authorities are also keeping the most expensive restrictions in place for at least another five weeks, and probably a lot longer, although the city has hit all the targets, and is on course to ace most of them.
We don’t know how much tragedy the city avoided in fewer hospitalizations and deaths in the past few weeks as the metrics showed only incremental gains, or how much the slow easing will safeguard the health of its 8.4 million residents. There is certainly no way to put a price on saving a human life. But unemployment, and economic pain and anxiety have a cost too, and it’s worth running the numbers showing how the deadweight from the lockdown is crushing the size of New York’s economy and punishing employment.
As we’ll see, it’s impossible to put a number on the extra load caused by stretching out the initial full lockdown, and requiring a long schedule for reopening that could ban restaurants from seating customers indoors until July or even later, although the State will allow outdoor dining as early as June 22. Clearly, that amount is a relatively small addition to what a shorter lockdown would have exacted. But it’s still not insignificant, because the overall burden is so gigantic. We’ll get to detailed numbers in a moment. But here’s a look at the size of that burden––you may want to take two deep breaths and a swig of scotch before reading on. Fortune estimates the stoppage’s total hit to the New York economy for 2020 is $63 billion, or $173 million a day. New York’s bill per resident is twice as high as that facing the rest of America west of the Hudson River.
On a personal note, I’m a New Yorker, a resident of the Chelsea neighborhood north of Greenwich Village. I’ve been awed as the streets previously emptied by coronavirus have in recent days been replaced by thousands of protestors marching against police brutality in the wake of the George Floyd’s death. New Yorkers have taken masking and social distancing relatively seriously to this point, and it’s unclear what effect the recent protests will have on New York’s caseload or lockdown measures, at least from a disease prevention standpoint.
What I and some economists are pondering however, is the “marginal” benefit the state and city are achieving by leaving heavy restrictions in place so much longer than other cities, and at what cost. That cost obviously isn’t anything like the full $173 million a day, since an unfettered reopening wouldn’t come close to restoring New York to last year’s dynamism. But it’s still big.
New York reached most of its reopening metrics weeks ago
Gov. Andrew Cuomo ordered a full shutdown on March 20, then established four separate phases for reopening that apply to all of the state’s 10 regions, including for New York City. Businesses with a low risk of infection are permitted to resume operations in the earlier phases, followed by more vulnerable sectors. Each phase must be in place for at least 14 days before the region can move to the next phase. If infections spike during the designated two-week period, the state can extend the interval before the next phase begins until the outbreak recedes.
New York City is scheduled to begin phase one on June 8, when construction projects and manufacturing businesses may reopen, and retailers are free to provide goods such as shoes and electronics for either curbside or in-store pickup. In phase two, people can visit real estate offices, car showrooms, hair salons, and a number of other professional services sites, and return to work in office buildings.
It isn’t until phase three that restaurants for dining in, malls, and in-store retail will reopen, and all theaters and conference venues must remain shuttered until phase four. Hence, the earliest the city’s stores and restaurants can reopen is July 8. Of course that date could be pushed back for weeks, and neither the city nor the state has established guidelines for restaurants or shopping, although Mayor Bill de Blasio has talked about imposing strict limits on the number of seats that can be occupied in eateries. By contrast, Georgia opened restaurants on April 27, followed by Texas on May 1, and Florida followed on May 15.
New York State established seven requirements for reaching phase one, and the city set three of its own. It’s worth noting that the city has either satisfied, or come extremely close to satisfying, all of these benchmarks for weeks. By early May, the city had met five of the state’s seven criteria, including both a 14-day decline in hospitalizations and hospital deaths, and provision of sufficient testing, and two of the city’s three standards, fewer than 200 hospital admissions per day, and a less than 15% daily rate of infection, a bogey it reached around May 5.
On two state standards, having sufficient capacity to make at least 30% of hospital beds and ICU beds available, New York City was just a shade short for weeks before reaching the benchmark in late May. For example, on May 4, it hit 26% in hospital beds and 21% in ICU beds, and by around May 18, it was regularly registering 28% or 29% in both categories. The one city regulation where it lagged was “fewer than 375 critical care cases in public hospitals.” Yet by mid-May, the number was already in the low 400s.
The one out of the 10 metrics where the city was far off the mark until recently: new hospitalizations of less than two per 100,000 residents, meaning around 84 new admissions per day. On May 4, that number was more than twice the limit, but it was falling fast, and by May 18, hospitalizations per 100,000 had fallen to 1.8.
Put simply, the city had satisfied six of the 10 criteria by early May, met a seventh by mid-month, and by that point was within a few percentage points on two others and maybe 50 critical care patients over the limit on the final requirement. It’s also important to note that New York City is no longer an outlier in new cases. According to city statistics, it’s now averaging fewer than 600 new cases per day, or six per 100,000, and between 4% and 5% of tests are proving positive. By contrast, the nation outside of New York is registering about 6.8 positive new readings per 100,000 tests, and the positivity rate is also about 5%.
The pandemic is ravaging employment and shrinking the economy
The two areas share a daunting theme: Both employment and the economy are faring far worse than in the rest of the U.S. In 2019, New York added 100,000 jobs, raising the rolls by a healthy 1.8%, and its unemployment rate stood at 4%. Retail and leisure, and hospitality, are particularly big employers. Combined, the Big Apple’s restaurants, bars, and hotels provide jobs for 800,000, equal to the rosters for professional and business services and health care, and twice the workforce in finance.
Those eating, drinking, and tourism venues are the pandemic’s bull’s-eye. The Independent Budget Office (IBO), a city agency that produces excellent forecasts on its economy and budget, predicts a staggering reduction of 474,000 jobs from the fourth quarter of 2019 to the close of 2020, shrinking the job base by 10.1%. About 150,000 of those losses are coming in retail, and another 120,000 in leisure and hospitality. All told, the IBO expects New York’s unemployment rate to peak at around 11.9% in the second quarter of 2021, far above its prediction for the U.S. of under 10%.
Moving to the impact on the city’s economy, the dollar decline in output isn’t an easy number to find, but it’s important. Neither the city nor the state provides an estimate for the city’s GDP, or the output of goods and services comparable to a country’s national income. I was able to approximate the figure from data provided by the U.S. Department of Commerce, which gives GDP for every county in America. According to Commerce’s Bureau of Economic Analysis, New York City’s GDP is approximately $900 billion; I was able to confirm that figure with experts on background.
Once again, the damage to New York’s GDP is much bigger than for the rest of America. The reason is twofold. First, New York produces far more dollars in goods and services relative to its population and number of businesses than the nation as a whole. New York’s GDP per capita is over $105,000, compared with $67,000 for the U.S. overall. “New York has a greater concentration in high-output industries such as finance, professional and business services, and health care than, say, a Midwestern city with strong dependence on manufacturing,” says George Sweeting, the IBO’s deputy director.
Second, the fall in output is much steeper than the nation’s average. Even though bedrock New York industries such as banking and technology haven’t seen a big drop in business or sweeping layoffs––their workforces are proving extremely productive from home––the fortunes of retail, and leisure and hospitality encompassing restaurants and bars weigh heavily. According to IBO, those two sectors account for 17% of all of New York’s wages, exceeding finance at 10% and equal to professional and business services.
The hit to hosting and entertaining is so devastating that the overall damage exceeds America’s norm. A report prepared for New York State by Boston Consulting Group, N.Y. COVID-19 Preliminary Economic Impact Assessment, forecasts (without citing a dollar number) that the city’s GDP will drop by 7% in 2020. That’s 30% more than the federal government’s estimate of a negative 5.4%.
By my estimates, a 7% decline would shave that $63 billion from New York’s GDP this year. That amounts to $7,500 for every resident in the city, although not nearly all of that drop is accounted for by wages; a large portion is also lost profits and investment. The pandemic is shrinking GDP across America by only half that amount, around $3,900.
Everything about New York is outsize, and, unfortunately, so are its losses from COVID-19. Whether the city and state drove those costs higher without getting much extra improvement or safety in return will be the subject of many studies in years to come. It’s a question that right now has no answer. But it’s worth asking.
More must-read finance coverage from Fortune:
- When it comes to earnings, Wall Street has already moved on to 2021
- How much of the bear market losses have been recovered?
- These five stocks are eating up your index fund. Here’s a better strategy for investing in this market
- These stocks may benefit from the resurgence of the Great American Road Trip
- What happens to an investor’s shares when a company delists?
- WATCH: Why banks were ready for the financial impact of the coronavirus