Beige Book Report: New York
March 5, 2014
Economic activity in the Second District declined modestly in the first few weeks of 2014, hampered by inclement weather. Contacts report some broadening of price pressures in the service sector, though retail prices remain mostly stable. Manufacturers in the District report that activity was stable whereas service-sector firms report some weakening, on balance. Labor market conditions have continued to improve gradually since the last report. General merchandise retailers report that sales were below plan and down sharply from a year earlier, due to unusually harsh weather in January and early February. New auto sales weakened noticeably in January but showed signs of rebounding in the first half of February. Tourism activity was mixed in January and early February, hampered by harsh weather but boosted by the Super Bowl. Housing markets were mixed, while commercial real estate markets firmed slightly. Finally, banks report some further weakening in loan demand from the household sector, little change in credit standards, and steady to declining delinquency rates.
Consumer Spending
General merchandise retailers report that sales weakened noticeably in early 2014, running below plan and well below year-ago levels. Two major retail chains indicate that sales during the first six weeks of the year were down sharply from comparable 2013 levels, mainly due to the weather. One contact notes exceptionally low gift card redemptions--viewed as a likely harbinger that much of the shortfall in sales will be made up when warmer weather arrives. Similarly, contacts at major malls in upstate New York report that sales were weak in January and early February, due largely to heavy snow and extremely cold weather, particularly during weekends. Not surprisingly, one category that has performed reasonably well is cold-weather outerwear. Inventories are mostly at or modestly above desired levels. Prices are reported to be little changed, though some retail contacts describe the environment as increasingly promotional.
After a strong 2013, auto dealers in upstate New York report that new vehicle sales weakened noticeably in January but showed some signs of rebounding in early February. Inclement weather is viewed as having been an inhibiting factor in January, but not the only one; conversely, some of the pickup in February is attributed to a major auto show in Buffalo, and an upcoming show in Rochester is expected to provide some boost as well. Wholesale and retail credit conditions for auto purchases remain favorable.
Tourism activity has been mixed thus far in 2014. Despite the bad weather, attendance at Broadway theaters is up about 7 percent year-to-date, form 2013 levels, and total revenues are up 12 percent; however, it should be noted that there are roughly 15 percent more shows running in 2014 than in 2013. Manhattan hotels report that occupancy rates were little changed from a year earlier in January, though room rates were up sharply--cold and snowy weather dampened demand but this was largely offset by business related to the Super Bowl, which buoyed occupancy and especially room rates in late January and early February. Hotels in northern New Jersey, where occupancy rates are typically much lower this time of year, reportedly saw a more pronounced boost during the weeks around the Super Bowl. Hotels in western New York State, on the other hand, report that winter storms depressed business in January--particularly in Rochester and Niagara Falls.
Finally, consumer confidence improved in January: the Conference Board's surveys of residents of both the Middle Atlantic states (NY, NJ, Pa) and New York alone show confidence surging to a six-year high, while Siena College's survey of New York State residents indicates a more moderate increase, to a six-month high.
Construction and Real Estate
The District's housing markets have been mixed since the last report. Contacts in western New York State note some softening in both activity and prices in early 2014--largely a function of the unusually cold and snowy weather, but also reflecting increased difficulty obtaining credit. More broadly, though, home sales across New York State showed resilience in January, slipping only slightly from the elevated level of a year earlier, while prices reportedly rose 10 percent. Sales activity in New York City's co-op and condo market slowed somewhat in January and early February, as weather greatly inhibited buyer traffic. Sales prices for apartments were flat in Manhattan but continued to trend up in Brooklyn. Similarly, the market for apartment rentals has remained steady, with rents edging down in Manhattan but rising in Brooklyn. Weather has also been a factor in northern New Jersey since mid-December for both sales and new construction, though the underlying fundamentals also remain weak: mortgage delinquencies remain high, and a stubbornly high inventory of distressed properties is dampening market conditions. The multi-family market in northern New Jersey (mostly rentals) is reported to be faring well.
Commercial real estate markets were stable to slightly stronger in early 2014. In New York City, office leasing activity was characterized as very brisk; but this was accompanied by several new spaces becoming available in both Downtown and Midtown Manhattan, leaving the overall availability rate little changed. Asking rents for office space, however, continued to rise and were up 6 to 9 percent from a year earlier. Elsewhere around the District both office availability rates and rents were little changed in early 2014. In general, the market for prime (Class A) space has underperformed the rest of the office market. Industrial vacancy rates were mostly steady to down slightly across the District, while asking rents were little changed.
Other Business Activity
The labor market has shown further signs of gradual improvement in early 2014. Business contacts in both the manufacturing and service sector report steady to rising employment; and more firms plan to increase than reduce staffing levels in the months ahead--particularly in the manufacturing sector. Separately, a major employment agency specializing in office jobs reports that the market continues to improve gradually, though weather appears to have been somewhat of a deterrent to hiring. Many job postings are challenging to fill because they call for specialized skills; salaries generally remain flat.
Manufacturing firms in the District report a slight pickup in activity in early 2014, on net, whereas service sector businesses have seen a pullback--apparently driven, in large part, by the inclement weather. Still, business contacts remain widely optimistic about the near-term outlook. Overall, price pressures remain stable and generally subdued in the manufacturing sector but have grown increasingly widespread among service-sector businesses.
Financial Developments
Small to medium-sized banks across the District report a further decrease in demand for consumer loans and residential mortgages but no change in demand for commercial mortgages and commercial & industrial loans. Bankers also indicate a decrease in demand for refinancing. Respondents note that credit standards were unchanged across all loan categories. Respondents indicate a decrease in spreads of loan rates over costs of funds for commercial loans and commercial & industrial loans, but report no change in other categories. Respondents indicate little or no change in average deposit rates. Finally, bankers report modest declines in delinquency rates, on balance, for all loan categories.