Beige Book Report: New York
January 15, 2014
Economic growth in the Second District continued at a moderate pace in late 2013. Contacts note that cost pressures have increased somewhat, while selling prices are mixed but generally stable. A growing proportion of business contacts cross the District--in both manufacturing and other sectors--report increased activity. Labor market conditions have continued to improve modestly since the last report. General merchandise retailers indicate that holiday season sales were mixed but moderately strong, on balance, with steeper discounting than last year. New auto sales remained fairly robust in November but there were preliminary signs of slowing in December. Tourism activity showed some signs of slowing in late 2013. Home sales activity picked up in the final months of 2013, while commercial real estate markets have been mixed. Finally, banks in the District report declining loan demand--particularly for residential mortgages--as well as widespread reductions in delinquency rates.
Consumer Spending
Retailers report that sales were on or ahead of plan over the holiday season, with same-store sales steady to up moderately from a year earlier. Contacts at major malls in upstate New York report that business was strong in November but mixed in December; overall, holiday season sales were roughly on par with 2012 levels. More broadly, a trade association survey of retailers across New York State indicates that sales overall were up 1-3 percent from a year earlier and roughly on plan. Contacts report that sales were hampered by harsh weather in late November into early December across much of New York State. Contacts at major retail chains indicate that sales in the region were somewhat ahead of plan and up roughly 5 percent from comparable year-ago levels, though one notes that post-holiday sales were somewhat disappointing. There was a broad consensus among retail contacts that there was heavier promotion and deeper discounting than in the 2012 season.
Auto dealers in upstate New York report that new vehicle sales were quite strong in November but there were preliminary signs of weakening in December. There are scattered reports of inventory accumulation. Sales of used automobiles have continued to be soft since the last report. Wholesale and retail credit conditions for auto purchases continue to be characterized as favorable.
Tourism activity has been mixed in late 2013 with some signs of softening. Manhattan hotels report that revenues per room fell more than 10 percent from a year earlier in November--the first 12-month decline since the fall of 2012. Occupancy rates slipped by more than the seasonal norm in November, and room rates were down from a year earlier. While November 2012 hotel metrics were distorted by Superstorm Sandy--with some hotels shut down for part of the month but others accommodating displaced residents and rescue workers--this does not account for the more recent weakness. Broadway theatres, however, continue to report brisk business: attendance and revenues were fairly strong in December, running 4 and 10 percent, respectively, ahead of 2012 levels.
Consumer confidence has been mixed but generally a bit improved since the last report. The Conference Board's survey of residents of the Middle Atlantic states (NY, NJ, Pa) shows confidence falling to a more than one-year low in November--following the government shutdown--but rebounding briskly in December. Based on Siena College's survey of New York State residents, confidence, which had fallen to a more than one year low in October, rebounded tepidly in November and held steady in December.
Construction and Real Estate
Residential real estate markets in the District have seen increased activity since the last report, while prices have been mixed. Contacts in western New York State report that sales activity has continued to be brisk, and inventories remain low; home prices have retreated from their recent highs, though there are still reports of multiple offers. Manhattan's co-op and condo market registered its strongest 4th quarter sales activity on record; one contact surmises that a spike in mortgage rates drove many fence-sitters to buy. Sales prices of Manhattan apartments were little changed in the 4th quarter and up around 2 percent from a year earlier; price increases have been more pronounced in Queens and especially Brooklyn. Manhattan's rental market appears to have reached a plateau, with rents essentially flat and down slightly from a year earlier. A contact in New Jersey's housing industry describes the market as stable to improving gradually, with an overhang of distressed properties continuing to restrain prices of both new and existing homes.
Commercial real estate markets were mixed at year end. In Manhattan, the outer boroughs, and Long Island, office availability rates were steady to down slightly in the fourth quarter, ending 2013 at multi-year lows; Midtown Manhattan registered particularly brisk leasing activity in the 4th quarter. In Northern New Jersey, Westchester and Fairfield counties, and across upstate New York, office availability rates were little changed at or near multi-year highs. Asking rents for office space were generally steady across the District and little changed from a year earlier. Industrial markets weakened slightly in the fourth quarter of 2013: vacancy rates across the New York City metro area moved up from multi-year lows, though rates across upstate New York were little changed at elevated levels.
Other Business Activity
The labor market has continued to improve gradually since the last report. A major employment agency reports that hiring activity was more robust than usual in December, particularly in the finance industry, though it is difficult to gauge the labor market from December, which is typically a slow month, they are optimistic about prospects for early 2014. One employment agency contact, however, has noticed more resumes from job applicants previously employed in the health care industry, and still a number of applicants from the legal industry. More broadly, the vast majority of business contacts report that staffing levels have been flat in the final months of 2013. However, substantially more businesses plan to expand than reduce their workforces in 2014.
More generally, firms in a variety of industries in the District, including manufacturing, report some pickup in activity in recent weeks. Business contacts also express increasingly widespread optimism about the near-term outlook. Overall, price pressures remain stable and generally subdued; though a growing number of service sector firms plan to raise their selling prices in the months ahead.
Financial Developments
Small to medium sized banks across the District report decreased demand for consumer loans and, especially, residential mortgages, while they reported no change in demand for commercial loans and mortgages. For residential mortgages, half of the bankers reported a decrease, while the other half reported no change. Bankers also report decreased demand for refinancing. Credit standards are reported to be unchanged across all loan categories. Respondents note a decrease in spreads of loan rates over costs of funds for all loan categories--particularly residential mortgages. Most bankers indicate that average deposit rates are unchanged. Finally, bankers report widespread declines in delinquency rates for all loan categories--particularly commercial loans and mortgages.