The 2009 Economic Landscape 

Financial Sector Woes Pressure the Northeast 

The downturn in U.S. housing markets that began in 

2006 was arguably the catalyst for the nation’s ongoing 

recession. However, turmoil in the financial sector has 

contributed to further deterioration in the U.S. and 

global economies. Since 2007, a succession of financial 

market disturbances has heightened risk aversion and 

credit spreads, and has severely limited the availability 

of credit across certain sectors of the economy. These 

developments have placed enormous pressure on some 

classes of financial companies, particularly those that 

exist outside of the regulatory umbrella and those that 

depend on the ability to sell loans or issue debt on the 

open market. 

The severity and duration of the recent distress has 

resulted in considerable job losses in the financial 

sector. Initially, job cuts were centered in residentialrelated financial employment, such as mortgage brokers, 

consistent with the nation’s housing downturn. 

However, as financial stress permeated the capital 

markets, job losses became widespread across the financial industry. By fourth quarter 2008, employment in 

the U.S. financial sector had declined by 2.4 percent 

from a year earlier, the sharpest decline since World 

War II.1 

Retrenchment in the Nation’s Financial Sector 

Is Centered in New York 

Contraction in the nation’s financial sector is magnified 

in New York State and particularly New York City— 

the nation’s financial center (see text box at right for 

the effects of financial sector contraction on other 

Northeast economies). Statewide, the contribution of 

financial jobs to total wages has increased in recent 

years. At its peak in 2007, wages from financial jobs 

accounted for 25 percent of statewide wages, considerably more than their contribution at the national level 

(see Chart 1). 

In New York City, the economy ebbs and flows with 

fluctuations in the financial sector because the city has 

a large share of financial jobs. Indeed, the proportion of 

financial jobs to total employment in New York City is 

Contraction in the Financial 

Sector Is Weighing on Other 

Northeast Economies 

Financial employment is a major economic driver in 

other parts of the Northeast, including some cities in 

New England and metropolitan areas along the East 

Coast. Like New York, these markets are vulnerable 

to contraction in financial employment. 

New Jersey, particularly the metropolitan areas 

around New York City, has a slightly higher concentration of financial employment than the nation. In 

fourth quarter 2008, New Jersey lost 12,500 financial 

jobs, about 4.6 percent, from one year ago. This rate 

of decline was nearly double the national rate and was 

the largest percentage decline for the state since first 

quarter 1991. 

Boston, Massachusetts, and Hartford, Connecticut, 

also had high concentrations of financial sector 

employment at 7.2 percent and 11.7 percent, respectively, at year-end 2008. Employment in Boston’s 

financial sector fell by 4.0 percent in fourth quarter 

2008, the largest decline since fourth quarter 1991. 

Much of the decline was centered in commercial 

banks and securities firms, although real estate employment also reported job losses. Employment in Hartford’s financial sector also continues to contract. 

During the fourth quarter, the area’s financial employment declined 0.8 percent from one year ago. 

The financial sector in Charlotte, North Carolina, is 

also contracting. This sector, which accounted for 8.5 

percent of the metro area’s total jobs in fourth quarter 

2008 and 40.5 percent of the area’s economic output in 

2006 (the most recent data available), has been losing 

jobs since mid-2007. The rate of decline rose during 

2008, reaching 5.4 percent in the fourth quarter. 

Wilmington, Delaware, also shed financial sector jobs 

in the fourth quarter, although the rate of loss was less 

than that of the nation. Employment associated with 

credit card banking, which has a substantial presence 

in Wilmington, has been relatively steady over the 

past year. 

1 Bureau of Labor Statistics. 

FDIC QUARTERLY 33 2009, VOLUME 3, NO. 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chart 1 Chart 2 

5% 

10% 

15% 

20% 

25% 

30% 

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 

Source: Bureau of Economic Analysis (Haver Analytics). 

Note: Financial wages are those earned in the banking, insurance, real estate, and 

securities industries. 

Data are through fourth quarter 2008 (most recent available) and are seasonally adjusted 

at annual rates. 

New York State 

United States 

Ratio of Financial Wages to Total Wages 

New York’s Economy Has Grown More Dependent on 

Financial Wages 

Recessions 

-20% 

-15% 

-10% 

-5% 

0% 

5% 

10% 

15% 

20% 

00 01 02 03 04 05 06 07 08 

Source: Bureau of Labor Statistics (Haver Analytics). 

Note: Data are through fourth quarter 2008 and are not seasonally adjusted. 

Securities Industry - New York City 

Securities Industry - Rest of the U.S. 

Employment Losses in the Securities Industry 

Are Centered in New York City 

Year-over-Year Change 

12 percent, or double the national share. Perhaps more 

important, wages in the securities industry, a key 

component of the city’s financial sector, account for a 

disproportionate share of total wages paid in the city. 

Wages in the securities industry accounted for more 

than 25 percent of total wages paid in the city, but the 

industry itself accounted for only 5 percent of total jobs. 

Securities industry wages increased almost four times 

faster than wages in the rest of New York City between 

2003 and 2007.2 

As the disruption in financial markets persisted during 

2008, job losses in New York City’s financial sector 

continued to mount. The securities industry was 

particularly hard hit. During fourth quarter 2008, the 

city’s securities industry lost more than 9,000 jobs, a 

4.8 percent decline compared with one year earlier and 

the worst percentage decline since second quarter 2003 

(see Chart 2). 

Job losses in the city’s securities industry will be amplified across other sectors of the economy. According to 

the New York State Comptroller, for every new job in 

the securities industry, three additional jobs are created 

in New York City and its suburbs. Conversely, losses in 

the securities industry will have a ripple effect across 

the area’s economy. Estimates suggest that during the 

2001 recession, this sector directly and indirectly 

2 New York State Comptroller, The Securities Industry in New York 

City, November 2008. Data are as of 2007. The securities industry—a 

component of the broader financial industry—is composed of jobs 

classified as securities and commodities brokers, portfolio managers, 

and investment advisors. This sector accounted for more than onethird of financial jobs in New York City in fourth quarter 2008. 

contributed to more than half of the private sector jobs 

lost in the city.3 

In addition, the sharp downturn in New York’s financial sector is negatively affecting state and local tax 

budgets. In fiscal year 2007–2008, tax collections from 

the securities industry accounted for almost 20 percent 

of total tax collections in New York State. The New 

York State Comptroller estimated that state tax collections from the securities industry, including business 

and personal filings, could drop by 38 percent in fiscal 

2010.4 

Job losses and reduced compensation in New York 

City’s financial sector are also having a detrimental 

effect across real estate markets. Home prices in the 

New York City metro area declined by 9.2 percent on 

average in 2008. This year-over-year decline in home 

prices was the largest in the 22-year history of these 

data, slightly exceeding the previous high recorded in 

March 1991.5 Still, New York City home prices fell 

much less during 2008 than in some other major cities, 

which saw double-digit declines. 

New York City’s commercial real estate market is also 

showing signs of weakness, particularly in Manhattan. 

3 Ibid. 

4 Ibid. 

5 S&P/Case-Shiller Home Price Index. This index defines the New York 

metro area as the New York City metropolitan statistical area plus 

other counties in New York State, Connecticut, New Jersey, and Pennsylvania that are within commuting distance of New York City. 

Declines are calculated based on the year-over-year percentage change 

in home prices. 

FDIC QUARTERLY 34 2009, VOLUME 3, NO. 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009 Economic Landscape 

The financial sector occupies as much as 30 percent of 

Manhattan’s office space.6 With intensifying pressure in 

the financial sector, office rents are dropping. The area’s 

vacancy rates are also on the rise but remained below 

the national average at year-end 2008.7 However, a sizeable amount of office space is estimated to return to the 

market, which may further pressure rental and vacancy 

rates. Some estimates suggest that the percentage of 

available office space in Manhattan may soon rise to its 

highest level since 1996.8 

New York City’s Financial Industry Has Been 

Resilient in Past Cycles 

Forecasts suggest that job losses in New York City’s 

financial industry will get worse before they get better. 

A March 2009 report by the New York City Independent Budget Office states that the city could lose 

51,000 securities industry jobs through third quarter 

2011, which would be a decline of about 27 percent 

from the 2008 peak.9 Job losses of this magnitude would 

6 Grubb and Ellis Research, Office Market Trends: New York City, 

second quarter 2008. 

7 Torto Wheaton Research, fourth quarter 2008. 

8 David M. Levitt, “Banks Vacate Towers Pushing Empty NYC Space to 

Record,” Bloomberg.com, February 26, 200 , 9 www.bloomberg.com/

apps/news?pid=newsarchive&sid=aSYcApYsh.Dw (accessed on March 

2, 2009). 

9 New York City Independent Budget Office, Analysis of the Mayor’s 

Preliminary Budget for 2010: IBO’s Reestimate of the Mayor’s Preliminary Budget for 2010 and the Financial Plan through 2013, March 

2009. 

exceed the number of securities jobs lost in the city 

during either the 1990–91 or 2001 recession.10 In addition, job losses in New York City’s overall financial 

sector are projected to reach 89,800.11 According to the 

March report, job growth in the financial sector is forecast to resume in 2012 and 2013, but at a slow pace. 

Although the near-term outlook for the financial 

services industry in New York City remains tenuous, 

the city’s financial sector should recover as it has 

following every recession since World War II. During 

its long history, New York’s financial sector has proven 

resilient and resurgent following periods of adversity. 

Authors: Robert M. DiChiara, Regional Manager 

Kathy R. Kalser, Assistant Director 

The authors would like to thank Norman Gertner, Regional 

Economist, Division of Insurance and Research, for his 

contributions to this article. 

10 FDIC analysis, quarterly data from the Bureau of Labor Statistics, 

and annual data from the Securities Industry and Financial Markets 

Association. 

11 David Belkin (senior economist, New York City Independent Budget 

Office), in discussion with FDIC staff, April 2009, regarding the Analysis of the Mayor’s Preliminary Budget for 2010 dated March 2009. 

FDIC QUARTERLY 35 2009, VOLUME 3, NO. 1