Beige Book Report: New York
October 15, 2014
Growth in the Second District's economy has slowed to a somewhat more modest pace since the last report. Prices of finished goods and services continue to rise at a subdued pace; cost pressures remain fairly widespread among service firms but have largely subsided among manufacturers. Labor market conditions have shown further signs of strengthening, except in the manufacturing sector, where hiring activity has slowed. Contacts in most industry sectors report that business has been steady or improving, though manufacturers report that growth has stalled in recent weeks. General merchandise retailers report that sales were mixed but, on balance, weaker since the previous report; auto dealers report that sales were steady to slightly stronger. Tourism activity has continued to show strength since the last report. Housing markets have been steady or stronger, with inventories rising to more normal levels. New York City's commercial real estate market has continued to strengthen moderately, and there are scattered signs of a pickup in commercial construction. Finally, banks report that household loan demand has leveled off but that demand from commercial borrowers continues to grow; delinquency rates continue to decline, particularly for commercial loans and mortgages.
Consumer Spending
General merchandise retailers say that sales were reasonably robust in August but mixed to weaker in September. Two major retail chains reported that sales, which were on or ahead of plan in August, softened noticeably in September and were below plan. Retail contacts at upstate malls report that sales were generally flat in both August and September, with some strength noted in back-to-school sales. Reports on inventories were mixed in September, but on balance, stocks are reported to be at or near desired levels. Prices are mostly described as steady, though some contacts characterize the environment as increasingly promotional.
Auto dealers across upstate New York characterize sales as steady but fairly strong. Buffalo area dealers report that that new vehicle sales continued to increase moderately in August and September, while sales of used vehicles remained soft. Rochester area dealers report that new vehicle sales were flat in August and steady to up slightly in September; they note favorable market conditions for both new and used cars. Auto dealers in both areas continue to report that both wholesale and retail credit conditions remain in good shape.
Tourism activity has remained robust since the previous report. Business at Broadway theaters continued to show strength in August and September, with attendance up more than 10 percent from a year earlier and revenues up roughly 13 percent. Hotel occupancy rates in New York City have remained near record levels, while room rates have risen moderately. Hotel occupancy rates have also continued to climb in the Buffalo and Albany areas but edged back in metropolitan Rochester. Consumer confidence in the Middle Atlantic region (NY, NJ, PA) slipped in September, based on the Conference Board's latest survey.
Construction and Real Estate
The District's housing markets have been steady to stronger since the last report, while inventories have risen from unusually low levels in some areas. Rents have leveled off in Manhattan and Brooklyn--in part reflecting extensive luxury rental development coming on line--while rents in Queens have continued to increase briskly. New York City's co-op and condo market was generally steady in the third quarter. Resale prices for apartments were little changed in Manhattan but continued to rise moderately in Brooklyn and Queens; sales volume was down more than 10 percent from the extraordinarily high levels of a year earlier but little changed from the second quarter.
Northern New Jersey's housing market has continued to be mixed. Demand for single-family homes has remained sluggish, and so has new single-family construction, as builders remain reluctant to build for inventory. In contrast, a strong rental market has continued to spur multi-family construction, especially in areas easily accessible to New York City. Housing markets in western New York State flattened out in August and September, as both sales volume and prices leveled off. Multiple offers have become less common, as the inventory of available homes has increased from low levels.
New York City's office market continued to strengthen in the third quarter: Office availability rates declined moderately in the Midtown and Midtown South markets and fell more noticeably in Lower Manhattan. Asking rents continued to rise and were up 5 percent to 10 percent from a year earlier. There are a number of major commercial developments under construction in Manhattan, and an industry contact in northern New Jersey notes that there has been somewhat of a pickup in commercial construction there, albeit from low levels.
Other Business Activity
Manufacturing firms in the District report that growth, which had been fairly robust through the summer, has stalled since the last report. Contacts in other industry sectors, however, report that business has been steady or expanding. Businesses generally report steady to modest increases in their selling prices. Reports on input costs have been mixed: Although service firms continue to report widespread increases in input prices, manufacturers generally report more that costs have leveled off.
The labor market has shown further signs of strengthening since the previous report. One major New York City employment agency notes brisk hiring activity and characterizes labor demand as increasingly robust--particularly for temps, workers with people skills, and especially IT workers. A contact at another employment agency has not seen the normal seasonal slowdown in recent weeks and characterizes the labor market as fairly good, with particularly brisk demand for HR people. While one industry contact describes salaries as "pretty flat", another reports upward pressure on salaries, as people are more frequently leaving jobs for higher pay. More broadly, service-sector firms continue to add workers at a moderate pace, though more contacts than in the last report say they plan to expand staff in the months ahead. One major retailer expects to hire moderately more seasonal workers for the holidays than last year. In contrast, manufacturers say they have scaled back both hiring activity and hiring plans.
Financial Developments
Small-to-medium-sized banks in the District report increased demand for commercial mortgages but steady demand for other types of loans and decreased demand for refinancing since the previous report. Bankers report that credit standards were unchanged across all loan categories. Respondents report narrowing spreads on consumer loans and residential mortgages. Banks indicate that average deposit rates remain unchanged. Finally, bankers report ongoing declines in delinquency rates, particularly for commercial loans and mortgages.