CNYCA’S COVID-19 Economic Update – 08.03.22

Amidst Recession Concerns, Congress Funds Steps Toward Green Job Growth and Economic Recovery

COVID-19 Economic Update is part of a regular biweekly Covid-19 Economic Update series. This week’s update was prepared by Lauren Melodia, Deputy Director, Economic & Fiscal Policies, Center for New York City Affairs at The New School. Read past installments here.

This past week has seen a dizzying amount of economic news. We learned that Gross Domestic Product (GDP) declined for a second quarter but consumer spending and jobs are still growing; the Federal Reserve continues to hike interest rates at a brisk pace; and inflation continues to run hot. Making sense of all of these indicators is challenging, made even more so by the unique ways the Covid-19 pandemic continues to affect life and the economy. 

This Economic Update highlights what the latest economic news means for New York City, which is still far behind the national average in recovering jobs lost from the Covid economic shutdown. It describes why the economy is slowing down and what that means for New Yorkers still looking for work. It details how new Congressional actions to invest in manufacturing and the transition to renewable energy can boost growth despite the slowing economy. And it highlights how New York’s government and workforce development community should respond to these developments with active labor market policies that reconnect Black and Latinx workers, young workers, and workers with a high school diploma (or less) – all disproportionately affected by Covid job dislocations to a changing economy. 

While the Bureau of Economic Analysis (BEA)’s advance estimate last week shows a second, consecutive quarter of real GDP decline, the U.S. economy is not officially in a recession. In fact, we won’t officially have news of a recession until the National Bureau of Economic Research (NBER) Business Cycle Dating Committee deems it so, using their broad criteria of “significant decline in economic activity that is spread across the economy and lasts more than a few months.” Still, there is good reason to believe that slower economic growth is likely to continue in the near future for two reasons. 

First, the inflation over the past year has been driven in part by price increases in basic necessities, like gasoline, utilities, food, and housing. While some of those prices are now coming down, consumers’ limited disposable income has been eaten up by rising costs of these basic necessities – things people cannot delay their spending on. This leaves people less disposable income for goods and services that could more demand-led growth elsewhere in the economy. Absent measures designed to directly curb price growth in these basic necessities, price increases will continue to constrain consumers’ ability to spend on tourism, restaurants and entertainment, and other goods and services that fuel the New York City economy. This is especially challenging, because many necessities – like food and gasoline – are globally priced and inherently volatile, so the Federal Reserve’s recent actions to curb inflation will not directly stabilize these prices.

Second, while the Federal Reserve’s inflation-fighting policy – raising interest rates – may not curb inflation in some of these categories, it is intended to slow overall economic growth. Last week, the Federal Reserve raised interest rates an additional 0.75%, the fourth interest rate hike this year. The Fed’s goal is to curb inflation by slowing economic activity, but the pathway to lower prices via higher interest rates is through higher unemployment and a potential recession. Raising interest rates raises the costs of new borrowing and discourages investment. That will have the effect of slowing the return of pandemic-affected jobs and other job growth. Higher unemployment will mean lower household incomes and less demand for goods and services, which may result in lower prices as well. This is how raising interest rates is intended to work. 

This slower growth in the overall economy, led by rising prices and rising interest rates, is expected to shape the next phase of New York’s incomplete recovery from the Covid pandemic. As of June, New York City was still 201,800 jobs (4.3 percent) short of where it was before the pandemic. Many of those missing jobs are in industries that were fundamentally transformed by the pandemic – from education to retail and restaurant service – and are occupations that disproportionately employ Black and Latinx workers, women, young people, and those with a high school education (or less). Slower economic growth could bake in the disproportionate impact of the pandemic for these workers, who already face discrimination in the labor market at large, like having a harder time getting hired or making equal pay to white, male counterparts with the same credentials. 

That underscores the urgency of targeted policies and programs that center the needs of New York’s most vulnerable workers. As underlying macroeconomic conditions become less favorable for growth, City and State government must now play a more active and expansive role in upgrading the skills of dislocated workers to prepare them for better jobs when economic growth resumes, and ensuring that community college enrollments rebound. 

A surprising opportunity now comes from Congress, where major developments last week will pump billions of dollars into targeted manufacturing and renewable energy industries. State, City, and non-profit partners can design policies and programs that guarantee this funding translates into good jobs and training that helps dislocated workers access those jobs.

For example, the newly enacted $280 billion CHIPS and Science Act provides subsidies and tax credits to companies that manufacture semiconductor chips in the U.S. Several existing Upstate manufacturers already make New York one of the largest semiconductor-producing states in the country. Now there will potentially be more job growth in this industry. However, the Federal bill lacks many worker protections that will make the difference between a job and a good job. New York agencies and workforce development organizations must work together to develop a strategy and set of guardrails that brings this money into the State as meaningful job growth and not simply as corporate tax breaks with no strings attached. 

An even more expansive economic opportunity for New Yorkers may come from the proposed Inflation Reduction Act, which Senators Charles Schumer and Joe Manchin unveiled last week.  If it passes (a big if), its $369 billion investment in renewable energy and climate change policies will help businesses and households increase energy efficiency and transition to renewable energy in the form of solar power, heat pumps, and electric vehicles. The bill also provides $60 billion to accelerate U.S. manufacturing of these products and their inputs. Moreover, it includes $5 billion in grants for states, municipalities, and tribal communities to reduce climate pollution and $3 billion for environmental justice block grants for low-income communities and communities of color. 

The largest proposed government investment in climate action in U.S. history, the act would influence the New York economy through direct creation of new jobs and through business and household demand for energy efficiency and renewable energy technologies. The manufacturing and construction jobs that could result have the potential to meet the needs of the same workers displaced by and disproportionately burdened by Covid job loss and job recovery. New York agencies and workforce development organizations must now work together to push for passage of this bill, and design policies and programs that prepare workers and consumers to take full advantage of the jobs that will be in demand in the near future.  

There is currently much uncertainty and confusion about the health of the U.S. economy. And long-awaited Congressional action investing in climate action and the economy are welcome but may not be sufficient. However, the possibilities for a continued, more equitable economic recovery for New Yorkers who have borne the brunt of the pandemic are emerging. It is imperative that we work collaboratively and strategically to design active labor market policies and programs – from vocational training to networking to public works programs and wage subsidies – that can match dislocated workers and low-income households to these opportunities. 

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