Beige Book Report: New York
June 3, 2015
The Second District's economy has continued to expand at a modest pace since the last report. Businesses report that selling prices remain mostly stable, though service sector firms indicate ongoing upward pressure on input prices and wages. Labor market activity has been more subdued in recent weeks. Consumer spending showed further signs of weakening in April, though there were some indications of a rebound in early May. Housing markets were steady to stronger; office and retail markets were mixed, while the market for industrial space continued to strengthen. Commercial construction and multi-family residential construction have picked up thus far in the second quarter. Finally, banks report stronger loan demand, continued narrowing in loan spreads, and lower delinquency rates across the board.
Consumer Spending
Retailers report that sales were weak and generally below plan in April but rebounded, to varying degrees, in early May. Two major general merchandise chains and a major upstate New York mall all indicate that sales were down from a year earlier and generally short of plan in April. Unseasonably cold weather and a shift in Easter from April to March this year were blamed for only part of the weakness in April. Retail contacts reported that sales picked up in May but were still described as on or below plan, with underlying demand characterized as somewhat weak in both months. Inventories are generally said to be at satisfactory levels, with one contact noting that delays at west coast ports have subsided. Prices are reported to be generally steady; one major chain indicates that pricing is less promotional than a year ago, while another chain reports that it is somewhat more so.
Auto dealers report mixed results for April and early May. Rochester area dealers report that new vehicle sales were down slightly from a year earlier in April and remained soft in May. Buffalo area dealers indicate that sales picked up somewhat in April and May, following a weak March. Though growth has been slow in both areas, sales activity remains at a fairly high level. Contacts note some tightening in auto lending standards, but generally report that credit conditions remain in good shape. Tourism activity in New York City has shown further signs of slowing in recent weeks: both Manhattan hotels and Broadway theaters report some recent weakening in revenues, and a retail contact notes some softening in tourism-related sales.
Construction and Real Estate
The District's housing markets have been mixed but generally stronger since the last report, with lean inventories reported in many areas. Buffalo area real estate contacts report that, after a weak first quarter, the housing market has strengthened noticeably in April and early May: low inventories have restrained sales activity somewhat but have buoyed prices and prompted bidding wars. Reports from Realtors associations across New York State more broadly point to a moderate pickup in the housing market, with inventories down and prices running about 5 percent ahead of comparable 2014 levels. Northern New Jersey has seen more modest gains, with one contact noting that an ongoing overhang of foreclosures continues to weigh on the market. New York City's co-op and condo market has been mixed but generally steady since the last report. Low and declining inventories and strong demand continue to drive up prices in Brooklyn and Queens. The same pattern is occurring in Manhattan, except at the high end of the market, where abundant new development has pulled down sales prices of luxury apartments.
Residential rental markets have been mixed but mostly stronger thus far in the second quarter. Apartment rents are running 2-5 percent ahead of a year ago across most of the District, though they have leveled off in Manhattan. Rental vacancy rates declined in northern New Jersey and across upstate New York, but were little changed in Long Island and most of New York City. Multi-family construction has been increasingly robust across most of the District.
Commercial real estate markets across the District have been mixed, with industrial markets continuing to strengthen but office and retail markets generally steady. Office availability rates have edged down in upstate New York and northern New Jersey, though they remain quite elevated in the latter. Rates remain steady across Manhattan but have risen to multi-year highs in Westchester and Fairfield counties. The market for retail space has also been generally stable, with rents rising modestly in most areas. Industrial markets, however, have generally strengthened: industrial vacancy rates have declined across upstate New York, northern New Jersey, and New York City and are at or near multi-year lows across most of the District. Industrial rents have been rising steadily across most of the District. While industrial construction has been subdued, office construction has picked up across northern New Jersey, upstate New York and particularly in Manhattan.
Other Business Activity
Manufacturing firms report that activity has been flat thus far in the second quarter. However, business contacts in most industry sectors report that activity has expanded moderately. The trucking industry has done particularly well, helped by reduced diesel prices and brisk demand, as well as catching up on transporting the backlog of goods from west coast ports. While manufacturing contacts report that input prices have been stable, service sector firms report upward pressure on input prices, as well as wages. However, both manufacturers and service firms continue to report that selling prices remain generally stable.
The labor market has shown signs of leveling off since the last report. Fewer contacts in both manufacturing and other sectors report that they are expanding employment, on net, though a sizable proportion of service-sector firms plan to expand employment in the months ahead. One major New York City employment agency reports that hiring activity has slowed somewhat from the brisk pace seen in March but that the job market continues to improve at a modest pace, with slight upward pressure on salaries. The pool of job candidates remains tight--particularly for IT workers--with one contact noting that candidates from outside the New York City area are deterred by high housing costs. A trucking industry contact also notes an ongoing widespread shortage of drivers.
Financial Developments
Small to medium-sized banks in the District report widespread increases in demand across all loan categories--particularly non-residential mortgages--while demand for refinancing was unchanged. Contacts indicate that credit standards remained unchanged across all loan categories. Bankers report a decrease in spreads of loan rates over cost of funds across all loan categories, except on consumer loans. Finally, bankers report widespread decreases in delinquency rates across all loan categories.