Even as Wall Street reported its strongest first half since 2009 as workers began returning to the office, state Comptroller Thomas DiNapoli warned about an uneven recovery for New York.
“Financial markets move in cycles, and profits will subside at some point,” DiNapoli said Thursday in releasing his
Wall Street’s prosperity run, he said, extended into the first half of 2021 with $31 billion in pre-tax earnings, beating 2020’s outsized first-half profits of $27.6 billion, even as job losses accelerated in New York City’s securities industry.
Pretax profits of the broker-dealer operations of New York Stock Exchange member firms are the traditional measuring sticks. About 125 member firms now exist, down from more than 200 in 2007, before the global financial crisis.
While banks and investment firms are doing well amid the COVID-19 pandemic, the city’s economy is less so, said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research.
Usually the two move in lockstep, she said.
“City tax revenues are not doing so well,” Gelinas said, referencing jobs numbers and not bank earnings.
Overall, the city has only filled roughly half the 900,000 jobs it lost during the pandemic.
“It’s become more of a chronic loss of jobs, particularly at the entry level,” she said. “Then there is the question of how many workers return to the office, which really hurts the value of office buildings.”
City Comptroller
Employment in New York City’s securities industry dropped by nearly 2%, or 3,600 jobs in 2020, to 179,900 jobs. DiNapoli said the loss of these jobs at a time when profits are soaring may reflect technology advances and job relocation. In 2021, job losses appear to have accelerated with the industry on pace to lose 4,900 jobs.
By contrast, the city’s financial plan forecast a 5.1% gain in securities employment in 2021, with the addition of 9,200 jobs.
Factors that boosted profits last year drove 2021 first half gains: record low interest rates that kept expenses down, strong trading volume, record earnings in subsectors including global equities — which had the strongest six-month period since 1980 — and record revenues from underwriting and account supervision fees and investment advisory fees.
Initial third quarter results show continued strength, he said, but the industry’s profit growth could slow as interest rates rise and make borrowing more expensive and federal monetary stimulus ebbs.
According to DiNapoli, it remains unclear whether Wall Street’s second half will maintain a trajectory that raises year-end profits above the 2020 pre-tax revenue of $50.9 billion or reaches the record $61.4 billion of 2009.
The securities industry is a major source of tax revenue for the state and city. Firms pay business taxes on their profits, and employees pay personal income taxes on their salaries and bonuses. Nonwage income derived from the industry’s activities, such as capital gains, also generates personal income tax revenue.
After two years of declining collections, DiNapoli’s office estimates that city tax collections attributable to the industry increased to a record $4.7 billion for fiscal 2021, the highest since 1996. “This performance reflects strong bonuses and near-record high profits,” DiNapoli said.
The state depends on Wall Street tax revenues even more than the city, because the state relies more heavily on revenue from personal income taxes and does not levy a general real property tax. As a result, the industry accounted for an estimated 18% of total tax collections in fiscal 2021, which ended March 31. New York has the nation’s earliest budget deadline.
DiNapoli’s report estimates that tax payments attributable to the securities industry in state fiscal stayed flat at $14.9 billion. Personal income tax collections accounted for 85% of this amount.
Timing differences between the city and state fiscal years account for the variance between state and city trends. The state’s March 31 budget deadline is the nation’s earliest, while the city’s is the more traditional June 30.
New York City accounts for about 90% of all industry employment statewide. Nearly half the securities industry jobs outside the city last year were in Nassau, Suffolk and Westchester counties, with the rest concentrated in the metropolitan areas that surround Albany, Buffalo, Rochester and Syracuse.
Industry employment outside the city has also declined since its peak in 2008, falling by 12.5%, or 2,900 jobs, to 20,400 in 2020.
By contrast, in the first quarter of 2021, Florida, Texas and New Jersey gained nearly 6,700 jobs combined, DiNapoli's report said. In fact, Florida and Texas, along with North Carolina, have combined to account for almost 46% of the total job growth nationwide over the past three years.
