Beige Book Report: New York
June 4, 2014
Economic activity in the Second District has continued to grow at a moderate pace since the last report. Prices of finished goods and services remained generally stable, and businesses report modest upward pressure on input prices. Manufacturers report that business activity has picked up considerably in recent weeks, while service sector firms indicate a mixed performance. Labor market conditions have shown signs of firming across a broad range of industries, with scattered reports of labor shortages. Both general merchandise retailers and auto dealers report that sales have been steady to stronger since the last report. Tourism activity has strengthened, no longer held back by harsh weather. Housing markets showed further signs of improvement, while commercial real estate markets were generally steady. Finally, banks report fairly widespread increases in demand for loans--especially mortgages; credit standards are little changed, while delinquency rates are steady to down modestly.
Consumer Spending
General merchandise retailers across most of the District report that sales rebounded strongly in April and early May, although weather has continued to be somewhat of a restraining factor in parts of upstate New York. Two major retail chains indicate that sales were mostly ahead of plan in April and the first half of May, with same-store sales running about 10 percent ahead of comparable 2013 levels, on average. One contact maintains that a surge in sales since mid-April corroborates that weather had been a major restraining factor. However, contacts at major malls in upstate New York report that sales were steady to down slightly in April and early May, as cold and rainy spring weather has continued to restrain shopper traffic. Retail contacts generally say that inventories are at satisfactory levels, that prices are mostly steady, and that the degree of discounting is little changed from a year ago.
Auto dealers in upstate New York report that new vehicle sales continued to be strong in April and early May, while used car sales have been mixed. Rochester-area dealers indicate further strengthening, with April new vehicle sales up 17 percent from comparable 2013 levels and May sales comparably strong; used car sales are also seen as fairly robust. Buffalo-area dealers report more moderate gains of 5 percent from a year ago in new vehicle sales but also characterize them as strong; used vehicle sales, however, are described as somewhat soft.
Tourism activity has strengthened since the last report, in part reflecting improved weather. Both revenues and attendance at Broadway theaters picked up markedly in April and remained solid into early May, running roughly 20 percent ahead of comparable 2013 levels--partly driven by an increase in the number of shows. The average ticket price has remained roughly on par with a year ago. New York City hotels report that revenues picked up modestly in April but appear to be strengthening noticeably in May, with occupancy rates running well above 90 percent and room rates up 3-4 percent from a year ago. This understates the number of stays, as the inventory of hotel rooms has also increased over the past year. Hotel occupancy rates also strengthened in parts of upstate New York in April.
Construction and Real Estate
The District's housing markets have picked up since the last report, buoyed by improving weather; however, low inventories are said to be a restraining factor in some areas. Contacts in the Buffalo-Niagara region indicate that housing demand remains brisk, though an exceptionally low inventory of available homes has held back sales volume; bidding wars are reported to be fairly common for prime properties. More broadly, the number of existing homes on the market is lower than a year ago across both New York State and northern New Jersey. One industry contact in New Jersey reports that, while there remains a big overhang of distressed properties, the inventory of available new and existing homes is very low; builders are seeing improved activity and are increasingly optimistic, but remain reluctant to build inventory.
New York City's sales market remains robust--particularly in the outer boroughs. While sales volume has not kept pace with elevated 2013 levels, one contact surmises that the weather may have pushed the peak spring season back a couple months. A major appraisal firm reports that prices of Manhattan co-ops and condos have risen moderately this year and are now nearly back to their peak levels of 2008; this contact also notes that nearly half of all residential (apartment) sales have been all-cash deals, in part from foreign buyers. Selling prices for Brooklyn and Queens apartments continue to rise briskly. Manhattan's rental market, which had been flat, has shown signs of a modest pickup in recent months, while strong demand continues to drive up rents in Brooklyn and Queens. The inventory of available condos and co-ops across the city remains lean, except at the high end of Manhattan's market, where there has been a good deal of new development.
Commercial real estate markets have been mixed but generally stable during the spring. Office availability rates remained elevated in the Westchester/Fairfield market and especially in northern New Jersey, but continued to edge lower in the New York City, Long Island and Westchester/Fairfield markets; in upstate New York, they rose modestly. Industrial availability rates have continued to edge down across most of the District.
Other Business Activity
The labor market has strengthened further since the last report. A growing proportion of both manufacturers and service-sector firms say they have added workers in recent weeks, and considerably more business contacts plan to expand than reduce employment in the months ahead. Separately, two major New York City employment agencies report that hiring activity has continued to pick up, driven in part by the financial sector. One contact says hiring is stronger than it has been in six years. There continues to be a shortage of IT workers, while companies are also having increased difficulty finding other workers whose skills closely match the job description. While salary increases remain subdued, one employment agency contact notes that many candidates are getting multiple offers and that this may be starting to put some upward pressure on salaries.
Manufacturing firms in the District report widespread increases in activity since the last report, whereas service-sector firms overall report a mixed performance. Price pressures in the manufacturing sector remain subdued; in the service sector they are more widespread but also subdued. In general, business contacts plan to hike their selling prices modestly in the year ahead.
Financial Developments
Bankers report fairly widespread increases in loan demand across all categories--particularly residential and commercial mortgages. However, they continue to report declining demand for refinancing. Respondents indicate that credit standards remain unchanged across all loan categories. Banks indicate a decrease in spreads of loan rates over costs of funds for both residential and commercial mortgages, but report no change in other categories. More than twice as many contacts indicate an increase versus a decrease in the average deposit rate. Finally, bankers report that delinquency rates on loan portfolios are steady to declining slightly.