As the pandemic extends into a third year, the Omicron variant has added another speed bump on New York City’s path back to normalcy, injecting new uncertainty into the economic outlook and threatening to exacerbate the city’s already skewed recovery.
Office workers were sent home again, reversing the steady increase in the number of metro riders and injured small businesses in key business districts. A survey of larger companies conducted by the Partnership for New York City, a corporate law firm, found that 75 percent of employers have delayed their return to the office.
The last two months were supposed to be uplifting, with the arrival of overseas travelers that provided a glimmer of hope for the hundreds of thousands of workers whose jobs depend on tourists.
Instead, the hotel occupancy rate dropped. Temporary closure signs filled restaurant windows, bank branches and public libraries raised by sick employees. Broadway shows shut down abruptly, some permanently.
Now the rise in Omicron is slowing, with the average number of recorded daily cases falling more than 80 percent from their peak in early January. But its effects are still persistent, especially for workers.
Like other waves of coronavirus, this one has disproportionately inflicted pain on employees to show up in person and deepen the sharp economic divide that has defined New York City’s fragile job recovery, the slowest of any major American city.
In December, service sector employees in the New York City area worked an average of 22.9 hours per week, lower than in December 2020, when the average was 25.4 hours, according to data collected by Gusto, a payroll platform. Working hours fell even more in the first two weeks of January despite a sharp drop in new virus cases.
“It’s clear that Omicron is doing some meaningful damage here,” said Mark Zandi, chief economist at Moody’s Analytics. “New York City is going to return, but it’s not going to jump all the way back for a long time.”
Still, parts of the city’s economy are booming. Wall Street companies like JPMorgan Chase, the city’s largest private employer, reported large profits in 2021 with significant wage increases for bankers. This helped bring New York’s overall personal income to higher levels than in 2019, putting city and state finances in a healthier position than economists had expected.
In a report released this month, the city’s independent budget office described a “remarkably stable” fiscal outlook for New York, based on conditions in late November. Billions of dollars in federal pandemic assistance, including stimulus checks and expanded unemployment benefits, had helped rebuild the city’s lost tax revenue.
However, given the uncertain impact of the Omicron variant, budget office economists are now warning that their outlook was potentially too optimistic. (And the stock market has also started the year on a wild and volatile turn, with the S&P 500 index falling 7 percent this month, after winning 26.9 percent in 2021.)
The latest wave of viruses has been hugely disruptive to small businesses like Land to Sea, a café and event venue that opened in Brooklyn’s Williamsburg neighborhood in October.
On December 16, the cafe kicked out customers in the middle of the day because an employee had been exposed to the virus. It took so long for the rest of the staff to receive test results that the cafe closed for two days, then switched to takeaway for only 17 days. (Everyone ended up testing negative.)
When an employee tested positive this month, Emily Shum and Eva Zhou, co-owners, struggled with confusing and shifting federal guidance around isolation periods. They decided to require the employee to show a negative test before returning. “We are still very careful,” Ms. Shum.
A particularly worrying economic indicator is the city’s labor market, which has consistently lagged behind the recovery nationwide. New York City had an unemployment rate of 8.8 percent in December, according to a job report released last week, compared to 3.9 percent nationwide.
New York City is not expected to regain all the jobs it lost during the pandemic until the end of 2025, the budget office expected, while the national economy is expected to surpass pre-pandemic employment this year.
Compared to other big cities, a disproportionate portion of New York City’s workforce consists of low-wage jobs that depend on tourism and full office buildings.
“The risk is to have a more permanently polarized society between those who have and don’t have,” said James Parrott, an economist at the Center for New York City Affairs. “We already had a gap between them before, but the longer it lasts, the wider it gets. It has serious consequences for the quality of life in New York City.”
The abyss may become larger with the recent recovery in the housing market, which has increased concerns about the city’s affordable prices.
While rental rates fell during the early months of the pandemic, they have now, according to posting site StreetEasy, surpassed pre-pandemic levels in neighborhoods like the Financial District of Manhattan and Downtown Brooklyn, where many officials have worked remotely. The median rent in SoHo, where rents rose the most last year, is now $ 6,002.
In the second half of 2021, more apartments were sold in Manhattan than at any time in the last three decades, driven by demand for luxury buildings, according to real estate firm Douglas Elliman. In Brooklyn, the average selling price is nearly $ 1.2 million, a 21 percent increase from before the pandemic.
“Rising rises mean people are moving back to the city, more tax revenue, more jobs,” said Nancy Wu, chief economist at StreetEasy. But, she added, “It will make it even harder for a tenant to find a place at an affordable price.”
The Omicron rise has only increased the economic insecurity of workers like Erik Owusu, who was sent home early in the pandemic from his job of arranging banquets at the Crowne Plaza Times Square hotel.
Last month, he became an Uber driver despite fears of becoming infected with the virus. He hopes enough tourists will return in the spring for the Crowne Plaza to reopen and call back.
“This pandemic really messed up everyone’s plans,” he said. Owusu.
By mid-December, 74 percent of the city’s vacant hotel rooms were filled. But it dropped to about 40 percent in the second week of January, according to STR, an industrial research firm.
The increase in pedestrian traffic at the three major airports serving New York City was also reversed. In November, airports handled more than nine million passengers, a drop of about 15 percent from the pre-pandemic level.
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But in the first week of January, the number of passengers dropped by about 34 percent compared to the same week in 2019, according to the Port Authority of New York and New Jersey.
Although international tourists return in large numbers, economists predict a permanent decline in business travel.
Gabriele Marinello, who is based in London and runs a platform that publishes scientific research, flew to New York as soon as travel restrictions were lifted in November, hoping to meet in person with funders and potential clients. He traveled with three of his employees and booked a three-month stay at an Airbnb in Brooklyn.
But as Omicron tore through the city, most of his meetings turned into Zoom calls.
“I appreciate personal meetings,” Mr. Marinello. “It’s a little sad that this is the time we live in.”
In his first days in office, Mayor Eric Adams has repeatedly urged companies to call their employees back to the office, proposing that companies start with three days a week and slowly increase to five.
“It’s time to get back to work,” Mr. Adams to CNBC in an interview this month.
In mid-January, 22 percent of New York City employees walked into their offices, according to Kastle Systems, a security company that tracks access card slips in office buildings – down from last year’s high of 37 percent in early December.
Even financial firms like Goldman Sachs, which had been among the most aggressive in returning to the office, said during the Omicron wave that employees could work from home until February.
Security concerns have increased employees’ reluctance to return to the office, company executives say. After a wave of violent attacks this month, including the death of a woman who was pushed into an oncoming subway train in Times Square, revealed Mr. Adams an ambitious plan for public safety, including calling for changes to state bail legislation.
The future of office buildings, the largest contributors to the city’s property tax base, is particularly uncertain. Although office rental activity increased in the last months of 2021, unemployment rates have continued to rise, ending the year at 20.4 percent, nearly double the pre-pandemic rate, according to Cushman & Wakefield, a real estate firm.
In the area around the Grand Central Terminal, 30 percent of the store premises on the ground floor are either empty or still closed, according to the Grand Central Partnership, a group promoting the area’s businesses.
Just a few months ago, San Cheng thought his all-you-can-eat fish restaurant, Crab House in Midtown Manhattan, had finally gotten past the worst days of the pandemic.
The rise from the Delta variant had faded and daily cases had dropped to some of the lowest levels of the pandemic. Office workers were filling up Midtown again, and overseas visitors were expected to start returning.
With that optimism, Mr. Cheng in late September to expand the Crab House, and built an outdoor dining area primarily to accommodate diners who were not vaccinated and banned from eating indoors. But the structure was only used a handful of times before cold weather, and the Omicron variant scared diners away.
Even now, more than 60 percent of reservations at Crab House are canceled on an average day, Mr. Cheng.
Through it all, he remains hopeful that his business will survive.
“We are still happy with our future,” he said. “Otherwise we can not do it, you know?”
Lananh Nguyen contributed with reporting.