Beige Book Report: New York
March 4, 2015
Growth in the Second District's economy has continued to expand at a moderate pace since the last report. Businesses report that, while selling prices remain mostly stable, cost pressures have increased, including more widespread indications of rising wages. Labor market conditions, more generally, have shown further signs of strengthening in early 2015. Consumer spending has been a bit stronger, on balance, since the last report: both general merchandise retailers and auto dealers note improved sales, despite relatively harsh winter weather. Tourism activity has remained robust in recent weeks, and consumer confidence climbed to another multi-year high. Housing markets were steady to stronger in early 2015. Office markets have been mixed but mostly steady since year end, while the market for industrial space has continued to strengthen. Commercial and multi-family residential construction have picked up somewhat, but new single-family construction has been hindered by bad weather. Finally, banks report steady to stronger loan demand, further narrowing in loan spreads, and steady to lower delinquency rates.
Consumer Spending
Retail sales have improved somewhat, on balance, since the last report. A major general merchandise chain indicates that sales were up strongly from a year ago and also above plan in January but slowed a bit and were on plan in the first half of February. Similarly, a major retail contact in upstate New York describes January as a solid month and February as fairly strong. In both cases, harsh winter weather was said to have hindered business somewhat. In general, retailers report that inventories are in good shape and that discounting remains prevalent.
Reports from auto dealers point to a pickup in vehicle sales. Dealers in both the Rochester and Buffalo areas report that new vehicle sales strengthened in January and remained fairly brisk in early February, despite harsh winter weather. Contacts also note continued improvement in the used car market. An early-February auto show in Buffalo was reportedly well attended, despite the weather. Auto dealers note that both wholesale and retail credit conditions remain in good shape.
Consumer confidence in the region improved further in January, rising to a more than 7-year high in both New York State and the broader Middle Atlantic region (NY, NJ, PA). Tourism activity has remained strong in early 2015. Hotel occupancy rates have been running slightly ahead of a year earlier in the Buffalo and Albany areas. By contrast, both hotel occupancy and revenues were down from a year ago in New York City, when business had been boosted by the Super Bowl. Broadway theaters report that year-to-date attendance and revenues were up more than 15 percent from 2014 levels.
Construction and Real Estate
The District's housing markets have strengthened somewhat in early 2015. New York City's residential rental market has firmed slightly: rents in Manhattan and Brooklyn are reported to be up moderately from a year ago, while they have been steady at an elevated levels in Queens. The inventory of available rentals has risen at the high end of the market--especially in Brooklyn--reflecting new development, but remains fairly tight overall. Rents across the rest of the District are up roughly 2 percent over the past year.
New York City's co-op and condo market has been fairly brisk thus far in 2015, despite harsh weather: sales volume was down moderately from the unusually high levels of a year ago, but still high, while selling prices were up moderately and have roughly recovered to pre-recession peak levels. Housing markets across the rest of New York State and New Jersey have mostly been sluggish, in part due to the inclement weather, though Buffalo area Realtors note solid market conditions in January and early February, despite the weather.
Looking at commercial real estate across the District, office markets have been generally stable, while industrial markets have continued to strengthen. Manhattan's office availability rate rose nearly a full percentage point since year end, mainly reflecting new projects coming on line, while rents continued to climb and were up 4 percent from early-2014 levels. Elsewhere across the District, however, office availability rates were little changed--at a fairly low level of 11 percent in Long Island and just under 13 percent across upstate New York, but at an elevated level of near 18 percent in northern New Jersey and Westchester-Fairfield counties. Industrial availability rates continue to edge down across the District and are at or near multi-year lows in Long Island, as well as Westchester and Fairfield counties.
Commercial construction has remained fairly listless overall, though office construction has picked up in Manhattan and northern New Jersey while industrial construction has picked up somewhat across upstate New York. Multi-family residential construction has been fairly strong across much of the District, though single-family construction has been hindered by weather.
Other Business Activity
Contacts in leisure, hospitality, business services, transportation, and wholesale trade report that activity has picked up in early 2015; businesses in education and health and finance report stable activity; while information industry contacts note some weakening. Manufacturing firms report that activity continued to expand at a modest pace in early 2015; while they have grown less optimistic about the near-term outlook, on balance, a growing proportion plan to increase capital spending in the months ahead. Both manufacturing and service firms report stable selling prices, though service sector firms note increasing pressure on input prices.
The labor market has continued to strengthen since the last report, with some reports of increased wage pressures. One major New York City employment agency maintains that the job market has tightened considerably in recent months and that it is stronger, across the board, than it has been in eight years. This contact also notes that wages have accelerated, especially for workers with any computer skills. More broadly, business contacts report that they continue to increase employment, on balance, and considerably more firms plan to add than cut jobs in the months ahead. Service-sector firms also indicate increasingly widespread wage hikes.
Financial Developments
Small- to medium-sized banks across the District report increased demand for residential mortgage loans, commercial mortgages, and commercial and industrial loans, but a slight pullback in demand for consumer loans and for refinancing. Credit standards were reported to be unchanged across all loan categories. Bankers report a decrease in spreads of loan rates over cost of funds across all loan categories--particularly in commercial mortgages, where nearly half of those surveyed note lower spreads and none report higher spreads. Respondents also reported no change in the average deposit rate. Finally, banking contacts again report lower delinquency rates on consumer loans but little change in delinquencies in other categories.