Category: Market Insights

Dear New Yorkers,

The economic numbers are mixed again this month. On the positive side, employment in New York City is now back at 99% of pre-pandemic levels, even with layoffs in technology. Restaurants and hotels, which took the hardest hit, are back at 95%.

But the bank failures at Silicon Valley Bank and Signature Bank pose serious new concerns (and remind us of the importance of strong public policy to manage risk, even when fast-talking lobbyists push to eliminate it). Inflation remains stubbornly high, and now the Fed’s ongoing efforts to combat it through interest rate increases could have implications for other mid-sized banks already under scrutiny by their depositors. And if banks become even more reluctant to make new loans, the likelihood of a recession grows.

Meanwhile, the ongoing arrival of families seeking asylum has pushed the shelter census to its highest levels ever, as the housing market remains tight. (Check out our issue brief, which details the contracts the City is entering into to provide shelter – and outlines the work needed to help people get out of shelter).

The City’s budget is mixed-news, too. Higher-than-expected revenues thus far will help to balance the budget for this fiscal year and next. But new labor contracts, declines on Wall Street, and the end of federal pandemic aid portend big gaps in the following years. (See our analysis of the Mayor’s Preliminary Budget and my testimony to the City Council).

For Women’s History Month, our spotlight focuses on the “care economy,” which has long been neglected and undercompensated, despite the centrality of care workers to all of our families, precisely because nurturing our kids and caring for our elders has been characterized as “women’s work.”

If we learned anything from the pandemic, it should drive us to better value care work. As the data shows, it has largely been public policy – raising the minimum wage, adding a small but meaningful boost for home care workers, and “pay parity” for childcare workers in the public and nonprofit sectors – that has achieved modest pay raises for home care and childcare workers in NYC, a workforce that remains largely low-income women of color.

Don’t let the mixed economic signals keep you from enjoying the first hints of spring. While you’re watching for the first blooms, we’ll keep watching the numbers.

Sincerely,

Brad Lander

Federal Reserve Chair Jerome Powell said that “Financial conditions are tightening after SVB’s collapse and could slow the economy, Powell says The U.S. banking industry is robust, but the recent failure of a few regional banks could have unintended consequences that slow down the economy, according to Federal Reserve Chair Jerome Powell. Powell described the banking system in a press conference following the most recent Federal Open Markets Committee meeting as “sound and resilient” but said the central bank was monitoring a change in the availability of credit for consumers and businesses. related investing news “Financial conditions seem to have tightened, and probably by more than the traditional indexes say. The question for us though is how significant will that be, what will be the extent of it, and what will be the duration of it,” Powell said. “We’ll be looking to see how serious is this and does it look like it’s going to be sustained. And if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions,” he added.

On Wednesday, the Fed increased its benchmark interest rate by a quarter of a percentage point, but according to its forecasts, there will only be one more increase this year. According to the head of the central bank, tighter financial conditions brought on by banks making more stringent lending decisions could have a similar effect as additional rate hikes from the Fed. Powell’s remarks follow significant pressure this month on regional banks. Due in large part to the rapid increase in interest rates devaluing the bank’s bond portfolio and causing significant paper losses, Silicon Valley Bank failed, becoming the second-largest failure in American history. While other banks have been able to handle the rate hikes, Powell said that SVB’s management “failed badly” in managing its interest rate risks. There have been significant deposit outflows at other banks, including First Republic and PacWest. A new Bank Term Funding Program was established by the Fed to aid banks in accessing capital, but since the facility’s launch on March 12 regional banks’ stock prices have fallen in choppy trading.

Although Powell refrained from saying explicitly that all deposits are now guaranteed, he said that deposit flows have stabilized over the past week and that Americans should feel confident about the security of their money. “What I’m saying is you’ve seen that we have the tools to protect depositors when there is a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools. I think depositors should assume that their deposits are safe,” he said. The collapse of Silicon Valley Bank has led to more scrutiny on the Federal Reserve’s supervisory role over banks, especially from Sen. Elizabeth Warren (D-MA). The Fed is conducting an internal review of potential regulatory issues around SVB, led by Vice Chair for Supervision Michael Barr, and Powell said he expects investigations from outside the central bank as well.”

From CNBC

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.5 percent in January on a
seasonally adjusted basis, after increasing 0.1 percent in December, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.4 percent before seasonal adjustment. The index for shelter was by far the largest contributor to the monthly all items increase, accounting for nearly half of the monthly all items increase, with the indexes for food, gasoline, and natural gas also contributing. The food index increased 0.5 percent over the month with the food at home index rising 0.4 percent. The energy index increased 2.0 percent over the month as all major energy component indexes rose over the month. The index for all items less food and energy rose 0.4 percent in January. Categories which increased in January include the shelter, motor vehicle insurance, recreation, apparel, and household furnishings and operations indexes. The indexes for used cars and trucks, medical care, and airline fares were among those that decreased over the month. The all-items index increased 6.4 percent for the 12 months ending January; this was the smallest 12-month increase since the period ending October 2021. The all items less food and energy index rose 5.6 percent over the last 12 months, its smallest 12-month increase since December 2021. The energy index increased 8.7 percent for the 12 months ending January, and the food index increased 10.1 percent over the last year.