Slow Economic Growth, Trade Tensions and Politics Cast Shadow Over Wall Street

John Jordan | October 2019

ALBANY—The fortunes of Wall Street have a lot to say in how the residential markets, particularly luxury housing, in the greater New York metropolitan area perform. Based on the results of the financial services sector in the first half of this year, the luxury markets should be enjoying a boost. However, the second half of this year is a much different story and could spell trouble for brokers specializing in suburban luxury sales.

A report released by New York State Comptroller Thomas P. DiNapoli notes that Wall Street pre-tax profits rose by 11% in the first half of this year—the best first half performance in a decade. However, a slowdown in the global economy and other factors pose threats to Wall Street’s fortunes in the second half of the year.

Pretax profits in the securities industry reached $15.1 billion in the first six months of 2019.

“Wall Street had a very profitable start in 2019, but uncertainties leave the second half of the year an open question,” DiNapoli said. “Volatile markets, global trade tensions, and political turbulence have sown economic anxiety and slowed global economic growth. My office will continue to keep a close eye on the securities industry as the year progresses, because what happens on Wall Street directly impacts the New York State and New York City economies.”

Industry performance is traditionally measured by the pretax profits of the broker/dealer operations of New York Stock Exchange) member firms. There are now about 120-member firms, down from more than 200 before the financial crisis.

While net revenue rose in the first half of 2019, growth slowed to 2.4%. The slowdown reportedly reflected poor performance across a range of activities including equities, commodities and currencies. The securities industry also held down the growth in expenses in the first half, which contributed to profitability.

Slower global economic growth, combined with trade tensions and political uncertainties, are casting a shadow over Wall St.’s second half and leave 2019’s year-end profits a guessing game. Although the securities industry has not yet reported on the third quarter, the nation’s largest bank-holding companies reported mixed results.

The average salary, including bonuses, for industry employees in New York City was $398,600 in 2018, a decline of 5.6% compared to 2017, but still five times more than the $79,800 average for the rest of the private sector in the city. Although that pay gap is slightly narrower than in 2007, when the securities industry paid six times the rest of the city’s private sector, it is still much wider than it was in 1981 when industry salaries were two times higher.

Overall, the securities industry accounted for 20% of all private sector wages paid in New York City in 2018, even though its 181,300 jobs comprised less than 5% of private sector jobs in the city.

Employment in the securities industry in New York City has increased in four of the past five years, but remains 4% (7,600 jobs) smaller than it was in 2007. In addition, job gains in the early part of 2019 have been erased in recent months. As of September 2019, the industry was on pace to lose almost 500 jobs in 2019. Last year, the industry added 4,700 jobs.

In 2018, there were 201,200 securities industry jobs statewide in New York, more than any other state in the nation. California was second with 96,100 jobs. New York City accounted for 90% of the state’s securities industry jobs.

The average bonus for workers in New York City’s securities industry was $153,700 in 2018, a 17% drop from the year before. Although profitability increased significantly in the first half of 2019, the amount set aside for compensation, including bonuses, declined by almost 1% compared to the same period in 2018. Bonuses for 2019 will likely be dictated by second-half revenues.

New York City’s budget assumes a 5% increase in industry bonuses, while the State assumes a smaller increase in the larger finance and insurance sector. Comptroller DiNapoli will release his office’s 2019 bonus estimate for New York City industry employees in March 2020.

In 2018, pretax profits in the industry reached $27.3 billion, which was the most since 2010 and the third straight year of profit growth.

Net revenue (gross revenue less interest expenses, the preferred industry measure) slowed to 2.4% in the first half of 2019, compared with 6.3% for all of 2018.

The securities industry accounted for 17% of New York City’s economy in 2018, according to the NYC Office of Management and Budget. Although other sectors have added more jobs since the end of the recession, no other industry plays a larger role in the city’s economy, the State Comptroller’s office stated.

In 2017, immigrants made up nearly one-third of industry employees in New York City, a slightly higher share than in 2007. A total of 24% of securities industry employees in New York City were paid more than $250,000 in 2017, compared to 2.6% in the rest of the city’s workforce.

Sixty percent of the employees in the city’s securities industry live in the city, with the largest commuter group (23%) coming from New Jersey, based on 2017 data. Two-thirds of industry employees were White, 19% were Asian, 8% were Hispanic and 6% were African American in 2017. Men comprised two-thirds of industry workers.

In Manhattan, where 98% of the city’s securities jobs are located, the average salary was $403,400 in 2018, compared to an industry average of $122,000 in the outer boroughs. The securities industry was responsible for 6% ($3.7 billion) of city tax collections in city fiscal year 2019. The securities industry was responsible for 17% ($13.2 billion) of state tax collections in State Fiscal Year 2018-2019.

OSC estimates that 1 in 10 jobs in New York City and 1 in 15 jobs in New York State are associated with the securities industry. OSC also estimates that each job gained or lost in the industry leads to the creation or loss of three additional jobs in other industries in the state.

John Jordan
Editor, Real Estate In-Depth