Fewer Wall Street Job Cuts?
It took 10 minutes last week to undo 85 years of Wall Street history. The Bear is dead! Long live the bull? Shareholders approved the sale of Bear Stearns to JP Morgan Chase at a slightly higher price than the original fire sale contemplated, but still 94% off the 52-week high for the stock. A stunning punctuation mark to the end of the credit crisis....for now.
According to an article in the New York Times last week, New York City Comptroller William C. Thompson Jr., said New York City will lose 85,000 jobs next year, and about a quarter of these will come from Wall Street. Reuters quoted a number of 15,000 to 25,000 from the report that was issued by the Comptroller's office. According to the Comptroller's report, this compares to 40,200 jobs during the 2000 to 2003 downturn. Now this differs considerably from the figures I cited in my piece The Ax Man Cometh, Can the Tax Man Be Far Behind?. In it I wrote: the "Securities Industry and Financial Markets Association showed 39,800 Wall Street jobs lost in 2001, and this number climbed to 90,000 in the next two years." The difference may be made up partially by Wall Street jobs lost outside Manhattan.
According to the Reuters article, "the latest job-loss estimates were milder than several others. For example, Wall Street could shed one in five jobs if this cycle in an industry known for its volatility mirrors previous ones, according to a state labor department analyst. That works out to 36,000 of lay-offs. Similarly, the city's Independent Budget Office, predicted 33,300 job cuts."
Crain's reported yesterday that 22,000 jobs had been lost on Wall Street in the last year and that the outlook was for far more. the article quoted Jonathan Jones, president of Manhattan's Jones Search Group as saying, "I'm afraid we're not even halfway through the wave of layoffs"
The bottom line is that like so many numbers people throw around these days, the quality of these numbers and projections stinks. The Reuters article goes on to say "Though banks and brokerages employ less than 10 percent of the city's workforce, they earn more than 30 percent of all wages and salaries, he said. And each Wall Streeter helps create 1.5 jobs in other sectors, from restaurants to shops." In my prior piece on Wall Street job losses I wrote that "According to the New York Post: "Economists at the city's Independent Budget Office have calculated that for every job lost in the securities industry, there are eventually another four to five jobs lost across the city economy." The conservative Manhattan Institute Empire Center for New York State Policy released a study back in October in its Fiscal Watch publication, which predicted a less draconian loss of two non-securities jobs for each lost Wall Street paycheck."
More junk statistics! For my part, the only thing I read into the latest projections is that the "It's less worse mentality" is alive and well for now. It is apparent that the current spin is that things are not as bad as "everyone" expected. Well, how could they be? "everyone" was expecting the end of the world about 2 months ago.
Both the Mayor's office and the Comptroller's office agree that there will be job losses in the city in 2009. I'd put my money on that - for the very little it's worth. Wall Street traders focus on second derivatives....is the current trend accelerating or de-celerating. If you are a trend follower this keeps you safe, because if something is accelerating to the upside, it usually dosn't just fall immediately without decelerating first. Financial stress seems to have stopped accelerating and for now the buzz will continue to be that things are "better than expected."
With the engines of commercial real estate finance, leveraged buyouts, IPOs, M&A, and fixed income structured products stalled, I don't see Wall Street in need of adding jobs any time soon and the prospect of a slow bleed out of more personnel remains very real. The question becomes, what will be the new "new thing" that creates traction on Wall Street and the economy as a whole? Without some outside spark the economy seems vulnerable to a double dip should conditions like inflationary commodities markets persist. Remember those words "double dip" - they'll be throwing them around after "less worse" gets stale.
From the Blogosphere:
NYC Independent Budget Office - Analysis of the Mayor's Budget 2009
Renters' Market - Landlords Ready To Offer Up Deals (Due To Financial Sector Slowdown)
Comments (2)
Jeff...Since this site has a "macro" focus, which I greatly appreciate, I wonder if the issue here should be permanent loss of Wall Street jobs. Recently, in the financial press I've seen articles about investment bank consolidations once the stability returns to their balance sheets (since, as the author wrote) only then will there be buyers. Also, I have seen articles about re-focus of U.S. investment banks, basically, to where the growth is, and that is the BRIC countries.
Also, I've seen commentators write even before this crisis that the trend in outsourcing jobs is permanent and we haven't seen anything yet until the next recession. Well, maybe that is here now for Wall Street.
Basically, what I am thinking is what will re-catalyze earnings for investment banks, sadly, is beyond the U.S. shores, and, being the profit maximizers that they are, they will be going where they need to go to do that. That means the "macro" trend to follow is permanent job losses.
Posted by Query1 | June 2, 2008 1:16 PM
You make some good points. I recently wrote a comment on this site about how the US stock market used to be seen as the best indicator of consumer sentiment, and that recently it has held up much better than opinion polls. However, this time around things really are different. The stock market is capitalizing earnings of companies, many of whom get 50% + of profits abroad and have a majority of their employees, if not their SG&A expenses abroad. They are also getting all of their incremental revenue, profits and employees abroad. Welcome to a US stock market that has very little to do with the US economy and US job growth. In the old days they used to say as GM goes so goes the country....and the market. If that were true today we would be in even bigger trouble than we already are. I agree that Wall Street will likely follow the trend of the many manufacturers, consumer goods and tech companies who already get most of their business and hire most of their new employees overseas.
Posted by jeff | June 2, 2008 7:49 PM