Roanoke Times Copyright (c) 1995, Landmark Communications, Inc. DATE: SUNDAY, March 11, 1990 TAG: 9003091655 SECTION: BUSINESS PAGE: B-6 EDITION: METRO SOURCE: BY ROBERT J. MCCARTNEY THE WASHINGTON POST DATELINE: LENGTH: Long
At Manhattan's Drake Hotel, the tony Lafayette Restaurant has introduced a bargain, three-course luncheon special for just $25 - the price that it typically sets for the main dish alone.
And at executive search agencies, resumes of unemployed bond traders and investment bankers are piling up as word is passed along that only the star performers can expect to find new jobs in their accustomed line of work.
From the idle printing machinery at financial publishing firms to city and state budgeteers struggling because of a fall in tax revenue, the hard times on Wall Street have stunted economic growth in the New York metropolitan area and could push the region into recession this year, according to government and private analysts.
During the 1980s, the financial industry's booming growth was crucial in pulling New York out of the morass that nearly sucked the city government into bankruptcy during the preceding decade.
The securities business alone - not including closely related fields such as commercial banking and accounting - was responsible for one-quarter of the city's job growth in the 10 years before the Black Monday stock-market crash on Oct. 19, 1987.
Today, however, the slump in the securities and banking industries have made them major drags on the local economy. "The total financial field, which represented the key engine for New York's growth for most of the 1980s, is now moving in reverse," said Samuel M. Ehrenhalt, regional commissioner of the U.S. Bureau of Labor Statistics.
The ripple effects are depressing real-estate prices, department-store sales and restaurant receipts. The impact is felt both because fewer people are working in the financial industry and because those who still have jobs have less money to spend.
"A lot of younger people, who basically had no restriction on what they could spend, are no longer working on Wall Street or are in positions that are leaner," according to Tim Zagat, editor and publisher of the Zagat Surveys that monitor the restaurant and hotel industries.
The city's restaurants suffered a drop in business volume of about 15 percent last year.
"It used to be, if you were working on a billion-dollar deal or sold $50 million of bonds in a day, your employer didn't worry if you spent 200 bucks on an expense-account dinner with your girlfriend after you left work at 8 p.m.," Zagat said.
"He wanted you to spend those extra few hours downtown, so you could talk on the phone to the West Coast. That basically has largely stopped."
Wall Street can trace its troubles back to Black Monday, but the pinch has been particularly hard just in the past few months. The biggest blow was last month's sudden collapse into bankruptcy proceedings of one of Wall Street's largest and best-known investment houses, Drexel Burnham Lambert Inc. That has already cost the New York City area more than 2,000 jobs and is expected to result in a total loss of about 3,400 positions by the end of this year.
Several other big securities houses - including the two largest firms, Merrill Lynch & Co. and Shearson Lehman Hutton Inc. - also have announced major layoffs including several thousand in the New York area this year.
The result is that Wall Street has lost more than 6,000 jobs since last September, in addition to 17,000 lost in the previous two years.
Given that the city also is losing jobs in manufacturing and commercial banking, and growth is paltry at best in the rest of the private sector and in government, the New York economy seems likely to suffer a net loss in employment for 1990.
"Most people were expecting attrition this year, but it's certainly jolting to get it in such big chunks" as with Drexel, said Rosemary Scanlon, chief economist of the Port Authority of New York and New Jersey.
"You have to turn around and ask, in what industry are we going to see creation of 3,500 jobs to make up for it? The answer is, there isn't one." The Port Authority operates the World Trade Center and other trade and transportation facilities.
The effect on New York is particularly severe when jobs are lost on Wall Street because the pay scale there is so high. A typical middle-level executive with five years' experience earns an annual salary of $100,000 and can expect a bonus of $200,000 or more.
As a result, while secretaries and computer-services personnel receive good but not spectacular earnings, the six- and seven-figure sums paid to executives meant that the average pay on Wall Street was $80,500 at the end of 1988. That compared with average pay in all other private-sector jobs in New York of $28,900.
"We're losing the top earners in the city" in the current layoffs, Ehrenhalt said.
Loss of jobs isn't the only problem, however. In addition, the big pay packages have been shrinking since 1988, and that is another reason the impact in New York has grown more acute.
While official figures are not yet available, it is widely estimated that year-end bonuses at the end of 1989 were down by 20 percent to 25 percent.
"Almost everybody is taking a pay cut. We're coming off a very giddy plateau that wasn't realistic to begin with," said Abram Claude, managing director of the executive recruiting firm Russell Reynolds Associates.
Of the Wall Street employees who have lost their jobs in the recent cutbacks, he said, the vast majority are likely to find work only in lesser-paying industries or outside the New York area.
Only a handful of top executives, the so-called "rainmakers" who generate a great deal of business on their own, will find it easy to switch Wall Street firms, he said.
"The people who have a hard time are the young associate, the young analyst and the older vice president who has been a good journeyman but not a particular star," Claude said.
The financial sector's woes have perhaps had their biggest secondary impact on the real-estate industry. The price of the average single-family home in the suburbs has dropped 14 percent since peaking in early 1988.
In the Hamptons, Wall Street's favored weekend getaway during the summer, the well-heeled are showing distinctly more caution as they plan for the warm weather.
Rentals of houses for "the season," from Memorial Day to Labor Day, have picked up considerably from dismal levels last year.
But Faith Cooper, a real-estate broker in Westhampton Beach, said there was an abrupt downturn in sales of houses last November following Wall Street's "mini-crash" in October.
"About one-quarter or one-third of the people who had wanted to buy have backed out," Cooper said.
She and the other four salespeople at Main Street Realty have been having a "rather difficult time," Cooper said, because they depend exclusively on commissions for their livelihood. These run about 6 percent, or $24,000 to $60,000 for the houses they sell at prices ranging from $400,000 to $1 million.
by CNB