New York is a notoriously tough town and when times are tough its citizens go into battle mode. The recession has hit the Big Apple very hard and it is impossible for a visitor to not see its impact. A few anecdotes from the past few days illustrate just how bad things are - and how New Yorkers are dealing with them.

A friend took her eight-year-old daughter to enjoy the glorious sunshine in Central Park last Sunday. The girl took off her shoes in the children's playground. When she turned around they were gone, and her mother had to piggyback her home on the subway.

Another friend was lunching at a diner on Sixth Avenue in the West Village on Monday when the woman at the counter next to him tried to pay for her meal with a credit card. When told the place accepted only cash, the woman asked where the nearest ATM was. Fifteen minutes later she had not returned. "It happens all the time," said the woman serving the meals.

And I could not help but notice when I walked through midtown on Tuesday the number of people, most of them women, standing on street corners holding small cardboard signs that said "Homeless". These were not New York's legendary bag ladies, who trundle their possessions around in shopping trolleys. These were well-dressed, obviously middle-class, people who were displaying their distress with abject shame.

I lived in New York during the recession of the early '90s and saw the shops being boarded up and apartment prices falling. I saw people cutting back and some being laid off, but it was nothing like now.

On the surface, people are gritty, determined and looking for ways to survive. Underneath there is a level of desperation I have never seen before.

Just two weeks ago the Governor of New York state, David Paterson, announced an extension of 13 weeks to 72 weeks in the period for which people can claim unemployment benefits. Had he not done this - and had the Federal Government not agreed to fund it - 56,000 people would have lost their dole. As it is, 1.3 million New Yorkers are receiving emergency food assistance.

The economy of New York City is inextricably tied to the fortunes of Wall Street. The New York State comptroller estimated late last year that 225,000 jobs would be lost to the city as a result of the recession. For every job lost in the financial sector, he said, two positions disappear in other industries in the city.

The recession is having an uneven impact in New York, with jobs disappearing in sectors such as finance, manufacturing and transport, while printing and publishing jobs have grown by 4.8 per cent over the past year. You can see the differential effects everywhere. Retail is sick, entertainment is booming.

At Bergdorf Goodman, the Fifth Avenue department store, this week, Carrie Bradshaw wannabes could get 30 per cent off their Manolo Blahniks or their Balenciagas. It seems every shop in Manhattan now has a permanent sale but not much merchandise is moving, except to tourists who are being welcomed with open arms by the city's vendors.

With entertainment it is a different story. Sadly, book sales are down and one of the city's huge Barnes & Noble emporiums on Sixth Avenue at 20th Street has just closed its doors, but Broadway is booming. There have been 43 new productions in the past year, the most in 25 years, and cinema receipts are up 16 per cent on a year ago.

But entertainment does not have the same knock-on effects as Wall Street, so these green shoots, while welcome, are not doing much to alleviate the gloom. Restaurants are struggling, although many now advertise "recession happy hours" with cheap drinks, fixed-price bargain meals abound in fancy eateries, and Fairway, the gigantic food shop on the Upper West Side, is holding "recession eating" classes on how to be frugal when feeding yourself.

Unlike during the 1930s, when the rich still spent, today - since the Wall Street scandals - it is seen as shameful to throw money around, so those whose livelihoods depend on big spenders are doing it hard. I know an antiques dealer who has not had a single sale all year, while two designers who specialise in upmarket apartment renovations have had to lay off their staff and scrounge around for work. Apartments are not moving. Corcoran Real Estate, one of the city's largest agencies, has reported that in April 2008 it was averaging 50 to 70 deals a week; a year later it is lucky to do 12. And that means there are no renovations, no decorating, none of the trickle down that comes from a hot property market.

Most people I meet know someone who has lost their job. Everyone's investments have lost value, retirement incomes have evaporated and people are fearful about what might lie ahead. And so people are stealing children's shoes, scamming diners for free meals and begging in the streets in what used to be the world's richest city.