The private equity deals that powered Wall Street for the first half of the year have slowed to a snail’s pace, giving rise to worries that Wall Street will begin cutting staff and slashing bonuses.

So far this month, there has been $3.2 billion worth of private equity transactions — the lowest level in nearly four years. During the same period last year, there was $7.2 billion in deal flow, according to data from Thomson Financial.

“I’m convinced that we are moving to a recession,” an analyst covering investment banks at Punk, Ziegel & Co., Richard Bove, said. “The mortgage sector is going to shrink dramatically. You are going to have a lot fewer investment banking deals. Loan losses will creep up meaningfully in the industry.”

The slowdown in private equity deals is important because it could mean large layoffs at investment banks that employ thousands of merger and acquisitions experts. Already, there have been cutbacks at the mortgage desks of these banks. So far this year, there have been 87,962 job cuts in the national financial industry, a 164% increase over the same period last year, according to a report from outplacement consulting firm Challenger, Gray & Christmas Inc. About 41% of the job cuts have been on the subprime mortgage lending side; earlier this month, Bear Stearns laid off 240 employees, and on Wednesday Lehman Brothers closed its subprime mortgage unit and laid off 1,200.

The repercussions of such job cuts and bonus decreases could be felt by everyone from restaurant waiters to tax collectors because New York City’s economy is closely tied to the financial industry. If bonuses are slashed, there will be less of the disposable income that has been fueling the luxury industry and apartment purchases. And if there are fewer deals on Wall Street, it could be the end of the enormous budget surpluses for the city and state, a senior fellow at the Manhattan Institute, Steve Malanga, said.

“What happens on Wall Street affects our entire economy here to a greater degree than it may affect Main Street, U.S.A.,” Mr. Malanga said. “We’re not there yet. But it’s definitely something to be watching and worrying about.”

In addition to investment banks, another driver of tax revenue and spending, hedge funds, are being watched closely. Last month, funds including the Bear Stearns High-Grade Structured Credit Fund and Sowood Capital Management collapsed after the market for subprime mortgages plummeted. Several other funds are still contending with large value losses because their holdings were exposed to the mortgage market.

The economist covering New York City for the state’s Department of Labor, James Brown, has forecast a “slight slowing” of the city’s job market for 2008. The city has been adding between 50,000 and 60,000 jobs annually for the past several years, which is a growth rate of about 1.5%, he said.

“I’m keeping an eye on profits for the next few quarters,” he said. “Companies begin managing head counts as soon as profits start to fall for more than a quarter or two.”

Stocks fell slightly yesterday, ending a period of positive momentum that started when the Federal Reserve decreased the discount rate to 5.75% from 6.25% last Friday. The Dow Jones Industrial average fell less than a point, to 13,235.88, the S&P 500 dropped 1.57 points, to 1462.50, and the Nasdaq Composite Index dropped 11.1 points to 2,541.70.

But while there is concern that the market turmoil could lead to job cuts, so far, the city’s labor market has been largely insulated from the downturn. A report from the city’s Office of Management and Budget reported there were 800 jobs added in July.

“It is too early to comprehend the employment impact of the recent turmoil on Wall Street,” the report said. In the short term, demand for office space is also projected to be up, the executive vice president of the real estate investment-banking group of Jones Lang LaSalle, Ben Singer, said.

Firms take several months to begin making the cuts because they want to be sure the market’s trajectory is negative for a significant period, the president of Schwarzkopf Recruiting Services, Richard Schwarzkopf, said. During a downturn, “the attrition on the execution side is enormous,” he said. “First it’s the marketing department, the analysts. … Then, less secretaries, less sales assistants.”

Mr. Bove said regional banks would have to reduce their loan offices because there would be a decrease in home equity, construction, and commercial loans. Bigger banks would be hurt less because they have credit card businesses.

“The American banking industry lives off real estate,” he said. “Cutbacks at regional banks are going to be far more dramatic than at the big lenders.”