Beige Book Report: New York
July 16, 2014
Economic growth in the Second District has continued at a moderate pace since the last report. Prices of finished goods and services continue to be stable, and businesses report moderate upward pressure on input prices. Manufacturers report a further acceleration in business activity, while service sector firms report steady, moderate growth. Labor market conditions continue to improve: manufacturers indicate that they have stepped up hiring activity since the last report, while service-sector firms continue to expand staff at a moderate pace. Both general merchandise retailers and auto dealers report that sales were quite robust in May but pulled back somewhat in June. Tourism activity has been increasingly brisk since the last report. Housing markets showed signs of leveling off, while commercial real estate markets strengthened slightly. Finally, banks report increased loan demand--particularly on commercial mortgages--little change in credit standards, and increasingly widespread declines in delinquency rates across all segments.
Consumer Spending
General merchandise retailers say that sales were robust and generally ahead of plan in May but mixed in June. While retail contacts in upstate New York note that sales were steady to stronger in June, two major retail chains and a number of other contacts note that business pulled back in June. Retailers generally attribute the strong sales in May to pent-up demand, after a long spell of unseasonably cool and wet weather; one major chain characterizes the pullback in June as a return to more normal levels. Retail contacts generally portray inventories as being in good shape. Prices are mostly steady, though one contact describes the pricing environment as a bit more promotional than a year ago.
Auto dealers in both the Rochester and Buffalo areas report that new vehicle sales increased strongly in May and were well ahead of comparable 2013 levels, but note signs of slowing in June. Auto dealers note that both wholesale and retail credit conditions remain in good shape, and they express optimism about the near-term outlook for sales.
Tourism activity has generally been increasingly robust since the last report. With more Broadway shows running through the early summer than in a number of years, revenues and especially attendance at Broadway theaters strengthened further in late May and June. Manhattan hotels saw exceptionally brisk business in May: revenue was up nearly 7 percent from a year earlier, and the occupancy rate reached a record high of 94 percent. Hotel occupancy rates also strengthened in the Albany area in May, but softened slightly in the Buffalo-Niagara Falls area. Consumer confidence in the region was mixed in June. The Conference Board reported a pullback in the Middle Atlantic region (NY, NJ, PA), whereas Siena College's June survey of New York residents shows confidence increasing for the third straight month.
Construction and Real Estate
The District's housing markets have been generally stable since the last report. Across both New York and New Jersey, existing home sales were down nearly 10 percent from a year ago in May, as the number of homes on the market declined; prices were reported to be flat to up slightly. Contacts in the Buffalo-Niagara region indicate that housing demand remains brisk, but that sales activity continues to be constrained by a dearth of available homes. One industry contact in New Jersey notes that the inventory of available new and existing homes remains low, as a large number of distressed properties remain off the market.
New York City's co-op and condo market remains robust, with prices up moderately from a year ago in Manhattan and Brooklyn. Sales volume was up moderately from a year ago in Manhattan and up briskly in Brooklyn. In Queens, both prices and sales volume retreated from high levels, reflecting a pullback in new development, which was quite robust in 2013. The inventory of available homes moved up in Manhattan but remains quite low; one contact remarks that some of the apartments recently being put up for sale are priced unrealistically. Inventory levels in Brooklyn remain exceptionally low. Apartment rental markets appear to have leveled off, as rents in Brooklyn and Manhattan have been flat in recent months. A contact in northern New Jersey notes that multi- family construction has increased strongly, while single-family construction has remained subdued.
Commercial real estate markets were mixed but, on balance, somewhat stronger in the second quarter. Office availability rates fell to multi-year lows in New York City and Long Island, but rose to multi-year highs in the Rochester and Buffalo areas; rates were little changed at high levels (near 20 percent) in northern New Jersey and Westchester & Fairfield counties. Asking rents for office space were flat across most of the District, except in Manhattan, where they continued to trend up and have risen nearly 10 percent over the past year. Office construction activity has been brisk in Manhattan but remains subdued across most of the District. Industrial availability rates were mostly steady to down slightly, with asking rents on industrial space rising on Long Island but mostly flat across the rest of the District. Finally, retail vacancy rates in Manhattan continued to trend up at mid-year; still asking rents continue to rise and are up roughly 8 percent from comparable 2013 levels.
Other Business Activity
The labor market has continued to strengthen since the last report. A growing proportion of manufacturers say they have added workers in recent weeks, and, as has been the case for a number of months now, somewhat more service firms say they are expanding than reducing employment. Moreover, considerably more contacts in both sectors say they plan to expand than shrink their workforces in the second half of the year. A major New York City employment agency reports that hiring activity has continued to advance gradually--hiring in the financial sector has slowed slightly, though this contact notes that there continues to be strong demand for IT workers and growing demand for human resource professionals. Wages and salaries, for the most part, remain stable.
Manufacturing firms in the District report a further acceleration in activity since the last report, whereas service-sector firms indicate steady, moderate growth. Manufacturers report that input price increases have broadened somewhat, while service-sector businesses report that they continue to be fairly widespread. However, the large majority of firms in both sectors say that their selling prices remain mostly stable and expect more of the same in the second half of the year.
Financial Developments
Small- to medium-sized banks in the District report continued increases in loan demand across all categories--especially commercial mortgages--since the last report. Bankers report ongoing declines in refinancing activity. Respondents indicate that credit standards were unchanged across all loan categories. A growing proportion of respondents indicate declining spreads of loan rates over cost of funds, with narrowing reported across all loan categories but especially in commercial mortgages. The vast majority of bankers--roughly four in five--indicate that average deposit rates were unchanged. Finally, bankers report increasingly widespread decreases in delinquency rates in all loan categories. Overall, more than 35 percent of respondents say delinquency rates have declined, while fewer than 5 percent say they have increased.