Beige Book Report: New York
April 16, 2014
Economic activity in the Second District rebounded since the last report, as the harsh winter weather abated. Prices of finished goods and services remained generally stable, though businesses in a broad range of sectors report upward pressure on input prices. Manufacturers and especially service-sector firms in the District report that activity has picked up in recent weeks. Labor market conditions have shown signs of firming, in both the manufacturing and service sectors. Both general merchandise retailers and auto dealers report that sales have rebounded in recent weeks, following a weather-related slump in the first few weeks of the year. Tourism activity has been mixed since the last report, with weather continuing to be a factor. Both housing markets and commercial real estate markets were mixed but somewhat improved, on balance, in recent weeks. Finally, banks report increased loan demand from the commercial sector, little change in credit standards, and across the board declines in delinquency rates.
Consumer Spending
General merchandise retailers report that sales rebounded strongly in March, running at or close to plan and generally on par with or up a bit from comparable 2013 levels. Weather was still seen as a factor restraining sales in March--particularly for spring merchandise--but to a lesser extent than in January and February. Contacts at major malls in upstate New York report that sales rebounded in March, following a disappointing performance in the first two months of the year, and were up modestly from a year earlier. Similarly, two major retail chains report that same-store sales, which had been disappointingly weak in the first two months of the year, bounced back in March and were on or close to plan. Inventories are generally at or near desired levels. Prices are characterized as steady overall, though one contact reports ongoing heavy discounting.
Auto dealers in upstate New York report that new vehicle sales rebounded since the last report. Buffalo-area dealers report that new vehicle sales were robust in both February and March, with double-digit percentage gains over comparable 2013 levels. Good lease deals, as well as lease turn-ins helped drive this recent strength. Rochester-area dealers also report a pickup in sales of new vehicles in recent weeks, though less pronounced, with sales up moderately from 2013 levels. Dealers in both these areas also note some pickup in used car sales and note that wholesale and retail credit conditions, more generally, remain in good shape.
Tourism activity has been mixed since the last report. Both revenues and attendance at Broadway theaters picked up in March and were up nearly 15 percent from a year earlier--in part because there are more shows running now. The average ticket price has leveled off. In contrast, New York City hotels report some softening in demand: both occupancy rates and room rates slipped below comparable 2013 levels in March, resulting in a roughly 8 percent decline in revenue per room; still, it should be noted that the number of hotel rooms city-wide is up 5 1/2 percent. Contacts surmise that unseasonably cold weather into March may still be adversely affecting travel.
Finally, consumer confidence was little changed in March: Siena College's survey of New York State residents indicates a small decline in confidence, mainly among upstate residents; the Conference Board's survey also shows a small decrease in confidence among New York State residents but a small increase among residents of the Middle Atlantic states (NY, NJ, Pa) overall.
Construction and Real Estate
The District's housing markets continue to be mixed, with severe winter weather weighing on sales in parts of the District. In particular, contacts in the Buffalo-Niagara region indicate that a combination of harsh weather and low inventory has hampered sales activity, though home prices have held steady. This pattern appears to be mirrored in other parts of upstate New York. In northern New Jersey, while weather appears to be less of a factor, a backlog of foreclosed properties continues to weigh on prices, according to one industry contact. Still, there are some signs of a pickup in the market, and builders appear to be increasingly optimistic, especially about the multi-family rental market. New York City's co-op and condo market has shown further strength in the first quarter: a leading residential appraiser notes that prices continue to rise modestly in Manhattan and substantially in Brooklyn and Queens, buoyed by a low inventory of homes on the market. In Manhattan, a shift in the sales mix towards larger apartments and new development has reportedly boosted dollar sales volume and exaggerated the price rise. Manhattan's rental market remains on a plateau, whereas rents continue to rise briskly in Brooklyn. In Brooklyn, most new development is rental housing, while in Manhattan, it is predominantly condos.
Commercial real estate markets were generally stable to somewhat stronger through the end of the first quarter. In New York City, office availability rates were little changed, as brisk leasing activity allowed several newly available spaces to be absorbed; however, asking rents continued to rise and were up roughly 8 percent from a year earlier. Office availability rates were down modestly in the Long Island and Westchester/Fairfield markets; they were little changed in northern New Jersey but up modestly across upstate New York. Outside of New York City, asking rents for office space were little changed. Industrial markets were generally steady across upstate New York but showed signs of tightening in downstate New York and northern New Jersey.
Other Business Activity
The labor market has shown increasing signs of strength. A large and growing proportion of business contacts across the District plans to expand their workforces in the months ahead--particularly in the service sector. Moreover, two major New York City employment agencies report that labor demand has strengthened across the board, in particular with increased hiring from the financial sector. One contact notes that there are only scattered wage pressures but anticipates a broader pickup in wages soon. Another agency, however, has observed a growing number of unemployed job-seekers from the health care sector. Nevertheless, graduating college students in the New York City area are reported to be finding jobs quickly, and skilled workers are increasingly difficult to find--particularly in the IT field. In upstate New York, some auto dealers mention a shortage of skilled technicians.
Manufacturing firms in the District report that overall activity continued to expand modestly in March, while service-sector firms indicate a more pronounced pickup, following a weather-related slump in early 2014. Price pressures in the manufacturing sector have picked up somewhat but remain generally subdued, while in the service sector they remain steady but fairly widespread.
Financial Developments
Small to medium sized banks across the District report increased demand for commercial mortgages and commercial & industrial loans, but lower demand for residential mortgages; consumer loan demand remains little changed. Bankers report that credit standards are unchanged across all loan categories. Respondents indicate a decrease in spreads of loan rates over costs of funds for commercial mortgages and especially commercial & industrial loans, but report no change in other categories. Deposit rates are reported to be little changed. Finally, bankers report increasingly widespread improvement in delinquency rates across all loan categories.