New York City Labor Market Weakening from Slow Growth
The current labor market in NYC is weakening. Outside of Education and Health Services and Leisure and Hospitality, most industries are seeing only moderate or decelerating growth. Progressive companies should consider cross-training or offer housing benefits as a recruiting tool to attract and retain talent.
ThinkWhy™ It Matters
Industry performance is the key to why the metro area’s aggregate outlook is weakening. Company leadership can leverage this summary to review performance and prospects for planning. Overall, the labor market in the area can be summed up as follows:
- Job growth is slowing.
- Unemployment is increasing.
- Average hourly earnings are increasing.
- More people are moving out of the metro area than moving in.
- Housing is some of the most of expensive in the U.S, but prices are declining in some neighborhoods and increasing at slower rates in others.
- The high cost of living, including taxes, transportation, food, entertainment and other costs, challenges employers to maintain an exceptional work force.
Unless you are servicing one of the sectors still growing such as the Health Care and Social Assistance, Leisure and Hospitality, Information, and Professional, Scientific and Technical industries, you may consider the following:
Slow hiring plans for the balance of the year and into 2020.
Reduce investments or consider cutting costs.
Identify other metro areas where demand (measured by population and job growth) in your industry is increasing.
Focus on employee uptraining and cross-training to increase productivity.
Average Hourly Earnings Growth
(all private employees, September 2019)
The New York City metro area’s job growth is slowing but more people are entering the labor force to take advantage of the increase in average hourly earnings of $35.16. With average hourly earnings growth accelerating since 2015, the number of persons entering the labor force has increased, but the unemployment rate increased because a percentage of those entering the labor market have not found work. Hence, the slow rate of job growth, especially in some industries.
For the year-to-date ending September 2019, average hourly earnings have increased by 2.7 percent, pushing the hourly rate up to $35.16. The year-over-year change was a strong 4.0 percent.
Unemployment Rate (August 2019)
The unemployment rate was 4.0 percent in August, the same as in July. (The latest unemployment rate reported for metropolitan areas by the Bureau of Labor Statistics is for August.) Over the past twelve months (August 2018 - August 2019), the unemployment rate has been as high as 4.6 percent in January 2019 and as low as 3.4 percent in April 2019.
For the first eight months of 2019, the labor force increased by 9,293 persons with the number of employed persons falling by 8,829 persons resulting in 18,122 more unemployed persons. This largely reverses the reduction in the number of persons unemployed in 2018 of 18,988, which lowered the unemployment rate to 3.7 percent in December 2018.
Job Growth by Industry (September 2019)
The rate of job growth in the New York City metro area is slowing when compared to the prior year. Annual job growth was 1.2 percent** with a job gain of 85,700. These rates are well below the five-year (2014-2018) average growth of 2.1 percent.
If your company services an industry with slowing job growth, your sales to these companies may decline, as they hire fewer employees or reduce cost. If your company serves industries seeing accelerated job growth, increasing revenues should be a focus.
Companies within the industries or super sectors below are outperforming the New York City metro area’s annual job growth of 1.2 percent. The industries highlighted are growing faster this month than the five-year average. For investors and owners of companies looking to grow faster, companies in these industries should be considered for merger and acquisition opportunities.
The Professional & Business Services super sector’s job growth is below the metro’s annual growth. However, the largest industry subsector, Professional, Scientific and Technical Services, commonly referred to as the Tech sector, grew its total share of employment by 2.3 percent over the year, which is also above its five-year average growth rate of 2.0 percent.
According to Tech:NYC, the area’s tech industry:
- Has more than 9,000 startups.
- Is ranked first in the Savills Tech Cities Index in 2019.
- Includes more than 100 incubators.
- Employed 333,000 persons in 2018.
Ranks second globally for startup output in 2019.
Industries with job growth BELOW the New York City Metro Annual Rate of 1.2 percent in September 2019 may experience revenue declines. If a company is not hiring more employees each year, it is probably not growing as fast as those that are. If your industry’s job growth is declining, your customers may not purchase as much from you as they seek to cut expenses.
Organizations that operate in an industry providing its products and services to companies in lower-performing industries may want to reevaluate the sales forecast for that sector. There is strong potential for a slowdown.
Cost of Housing
The cost of housing in any area is one of the largest expenses that employees incur. If the cost of housing is high, companies generally have to pay more to attract and retain talent. With the addition of more expensive cost of living factors, such as taxes, transportation, food, and entertainment, employers are challenged with maintaining a continual workforce and competitive wages.
Based upon StreetEasy’s Q3 2019 Market Report, the cost of for-sale housing in the Manhattan, Brooklyn and Queens neighborhoods has decreased with sellers unwilling to reduce list prices, causing inventories to increase.
The for-sale and for-rent housing markets are being impacted by negative population growth. According to the latest estimate by the U.S. Census Bureau (reported July 2019), the NYC metro area in 2018 had net domestic migration of -174,699 persons or -1.23 percent of its total population of 14,242,759. This continues a trend of net migration out of the metro area at over a 1.0 percent rate since 2016. The population in the metro area peaked at 14,290,162 in 2016 and declined over the next two years at a rate of -0.2 percent each year.
The principal reason given for the negative net domestic migration and population decline is the provision in the federal tax reform of 2017. It limited the income tax deductions for state and local taxes to $10,000 per year. Other significant reasons for more people moving out are: (i) some of the highest income taxes in the country, (ii) one of the least affordable housing markets in the country; and (iii) high cost of utilities, food, parking, gasoline, transit passes and entertainment.
The NYC metro area is mostly a renter’s market with 56 percent of the occupied housing units being renter occupied. According to Marcus & Millichap, market rental rates are estimated to increase by 3.9 percent in 2019 at a 3.2 percent vacancy rate, the lowest rate in 10 years. With rental rates going up, the level of rents are among the highest of major cities in the world. In a March 2019 report on rental housing in New York City by Apartment List, the median monthly market rent for a two-bedroom apartment was $2,499. Studio and one-bedroom apartments were reported as renting for $1,889 and $2,098, respectively. Of course, rental rates are lower outside of New York City property, but still very high compared to other metros in the U.S.
Net migration out of the area, due to the intensely high cost of living, will continue to cause a shortage of workers. Because of that, employers will need to get creative with their compensation and benefits packages.