Beige Book Report: New York
January 14, 2015
Growth in the Second District's economy has continued at a moderate pace since the last report. Businesses report that cost pressures overall have abated further, though there are some reports of increased wage pressures; selling prices remain generally stable to up slightly. In general, businesses report that conditions have improved somewhat since the last report. Labor market conditions appear to have strengthened further in the final weeks of 2014. Retailers report that holiday season sales were somewhat disappointing and little changed from 2013 levels, though sales picked up toward the latter part of December. Auto dealers characterize sales as sluggish in November, though both picked up, to varying degrees, in December. Tourism remained fairly robust in late 2014, and consumer confidence climbed to a multi-year high. Housing markets were mixed but, on balance, somewhat stronger in the final weeks of 2014; multi-family construction has been fairly brisk. Office markets have been generally steady, while the market for industrial space has strengthened a bit. Finally, banks report increased loan demand--particularly from the commercial sector--as well as narrowing loan spreads; delinquency rates continued to decline for commercial loans and mortgages, but picked up for residential mortgages.
Consumer Spending
General merchandise retailers indicate that sales were generally sluggish and below plan for the holiday season overall. However, most retail contacts noted that, while November and early December were sluggish, sales did pick up toward the latter part of the month, especially in the week after Christmas. The mid-November snowstorm that hit large parts of metropolitan Buffalo shut down many retailers for a number of days; in general, contacts in upstate New York note that sales picked up somewhat in December (especially toward the end of the month) but were little changed from the prior holiday season. Similarly, two major retail chains report that holiday-season sales across the region were below plan and little changed from 2013 levels, though both noted that sales picked up toward the latter part of December--especially after Christmas. Overall, prices were described as little changed from a year earlier; some contacts report heavier discounting this past holiday season than in 2013, while others characterize it as about the same. Post-holiday inventories are generally said to be in fairly good shape.
Reports from auto dealers across upstate New York indicate that sales were sluggish in November but picked up somewhat in December. Rochester-area dealers note that new vehicle sales weakened substantially in November but rebounded in early December, while used car sales improved. Buffalo-area dealers paint a more mixed picture: new auto sales have not rebounded substantially from November's weather-depressed levels, though sales of used vehicles have picked up somewhat. Auto dealers in both areas note that both wholesale and retail credit conditions remain favorable.
Consumer confidence in the region climbed in December, based on the Conference Board's survey of residents in the region. Confidence rose to a 10-month high in New York State and to a more than one-year high in the broader Middle Atlantic region (NY, NJ, PA). Tourism continued to be strong in late 2014. Broadway theaters report that attendance and revenues accelerated in December, and were up more than 10 percent from comparable 2013 levels. Manhattan hotels also report that business has continued to be brisk toward the end of the year.
Construction and Real Estate
The District's housing markets have shown signs of picking up in the closing weeks of 2014. Real estate contacts in western New York State indicate that the housing market has gained some momentum in the final months of 2014, particularly for trade-ups to mid-priced homes. New York City's co-op and condo market showed continued strength in the final quarter of 2014: apartment sales volume was down from the exceptionally high levels of a year ago but still fairly brisk, while selling prices were up moderately.
New York City's residential rental market has been mixed: Rents in Manhattan and Brooklyn have picked up somewhat and are up roughly 5 percent from a year ago, while Queens rents have been fairly steady. Residential rents elsewhere around the New York City metro area are reported to be up 4-6 percent from a year ago, while rents across upstate New York are up about 2 percent. Rental vacancy rates have risen slightly across the District, though they remain fairly low, especially in New York City. Multi-family construction remained fairly robust throughout most of the District in the fourth quarter.
Commercial real estate markets were mixed but, on balance, somewhat stronger in the fourth quarter. In New York City, office availability rates continue to drift down to new multi-year lows, while asking rents are running 6-8 percent higher than a year ago. Availability rates also edged down in northern New Jersey but edged up in Long Island and across upstate New York. Rents outside New York City are generally little changed from a year earlier. Office construction across the District continues to be sparse at best. Industrial markets, however, mostly improved in the fourth quarter, as industrial availability rates continued to trend down in Long Island and northern New Jersey, while asking rents rose moderately.
Other Business Activity
Manufacturing contacts across the District generally report that conditions improved somewhat in late 2014. Moreover, a survey of New York City area purchasing managers points to an acceleration in business activity in December; and a trucking industry expert reports that business conditions have improved substantially in late 2014, reflecting both strong demand and falling diesel prices; truck drivers are in high demand.
The job market overall showed further signs of strengthening in December, though contacts noted that this is a difficult time of year to gauge the market. Still, one employment agency notes that hiring activity has remained unusually robust across a range of industry sectors during this typically slow month. Another employment agency reports more of a typical seasonal lull but notes that more job candidates seem to be receiving multiple offers. Both contacts note increasing upward pressure on wages. Various contacts mention particularly strong demand for workers in information technology, human resources, customer service and trucking.
Financial Developments
Bankers report increased demand for commercial mortgages, commercial and industrial loans but steady demand for consumer and residential mortgage loans. Bankers note a continued decrease in demand for refinancing. Banks report that credit standards were mostly unchanged though there were slight indications of tightening in consumer loans and commercial mortgages. Respondents report a slight decrease in spreads of loan rates over cost of funds--mainly on consumer, as well as commercial and industrial loans. Respondents indicate no change in the average deposit rate, on balance. Finally, bankers report continued decreases in delinquency rates on commercial mortgages and commercial and industrial loans, but an uptick in delinquencies for residential mortgages and some leveling off in rates on consumer loans.