Beige Book Report: New York
July 15, 2015
Economic growth in the Second District has continued at a modest pace since the last report. Businesses generally report that selling prices remain stable, despite ongoing upward pressure on input prices and wages. Labor market activity has picked up in recent weeks. Consumer spending has generally remained soft since the last report, though there were scattered signs of a pickup toward the end of June; tourism has weakened. Manufacturing activity has remained mostly flat since the last report. Housing markets showed further signs of improvement, while commercial real estate markets were mostly steady. Both commercial and multi-family residential construction have picked up noticeably. Finally, banks report stronger loan demand, and lower delinquency rates, with particularly widespread improvement on both these measures in the commercial segment.
Consumer Spending
Retailers report that sales continued to be sluggish and on or below plan in May and June. One major general merchandise chain reports that sales were below plan, while another characterizes sales as on plan. A major retailer of building materials reports a pickup in sales. A contact at a major upstate mall notes that discount retailers are performing better than higher priced stores. Retail inventories are generally said to be at satisfactory levels, though one chain indicates that West Coast port delays and the corresponding late arrival of some merchandise has elevated inventories a bit. Prices are reported to be generally steady, on balance.
Auto dealers across upstate New York indicate that new vehicle sales were mostly flat in May but showed some signs of picking up in June; sales are reported to be down somewhat from a year earlier but still at reasonably high levels. Sales of used autos are reported to have picked up somewhat. Dealers characterize wholesale and retail credit conditions as in good shape.
Tourism activity has shown further signs of slowing--particularly in New York City, where both hotels and Broadway theatres report slowing business and declining revenues, and a major retailer attributes recent weakness to reduced tourism. Buffalo area hotels also report lower occupancy rates but indicate that future bookings look promising. Despite the general softness in consumer spending and tourism, consumer confidence in the region (NY, NJ, Pa) surged in June, reaching its highest level since before the recession.
Construction and Real Estate
The District's housing markets have been steady to somewhat stronger since the last report, while multi-family construction has picked up noticeably. Realtors in western New York report that, after a weak first quarter, the housing market continued to strengthen in June and in the second quarter overall; strong demand and lean inventories have driven up prices and made bidding wars increasingly common. Reports from Realtors across New York State more broadly also point to lean and declining inventories and steady home price appreciation. New York City's co-op and condo market has been steady to somewhat stronger since the last report: selling prices of apartments rose moderately in Manhattan but were flat in Brooklyn. Sales volume declined citywide and was down noticeably from a year earlier--reportedly reflecting a combination of lean inventories, the stronger dollar, and the fact that 2014 sales levels were extraordinarily high.
Residential rental markets were steady to somewhat stronger. In New York City, rents were steady overall, drifting lower on larger apartments but rising modestly on smaller units. Rents have increased slightly in Manhattan, remained flat in Brooklyn and eased somewhat in Queens; the inventory of available rentals has risen but remains low across the city. Northern New Jersey's rental market has tightened, with vacancy rates declining and rents rising fairly briskly. Across the rest of the District, both rents and vacancy rates were little changed.
Commercial real estate markets across the District have been steady overall. Office availability rates were steady in Manhattan, Long Island and across upstate New York; rates edged up in the Westchester-Fairfield market but declined in northern New Jersey, though they remain quite elevated. Asking rents for office space were little changed, except in Manhattan, where they continued to trend upwards. Retail rents in Manhattan also rose, but its retail availability rate has climbed to a multi-year high.
Office construction rebounded sharply in the second quarter--mainly in northern New Jersey and New York City--after a sluggish first quarter. Multi-family construction has also picked up considerably throughout the District, especially in New York City. A local real estate contact notes that new development, which has been predominantly rentals in recent years, is shifting back towards condos. New construction starts, as well as the amount of space under construction--for both office and apartment buildings--reached their highest levels in more than a decade.
Other Business Activity
Manufacturing firms report that business activity remained essentially flat in May and June, and contacts express somewhat less optimism than previously about the near-term outlook. Contacts in wholesale distribution, on the other hand, indicate some pickup in business, and a transportation industry contact reports that trucking activity remains brisk. Businesses indicate that selling prices have been flat to up slightly but continue to report moderate upward pressure on both wages and input prices.
The labor market has picked up since the last report. A major New York City employment agency reports that conditions have strengthened substantially across the board in recent weeks and notes that hiring activity is unusually brisk for this time of year. There is also reported to be increased demand for human resource professionals to recruit new employees--particularly in the finance and legal sectors. An upstate New York employment agency also reports strong labor market conditions and notes a shift from contract hiring to more direct hiring. Both contacts note some upward pressure on starting pay, as more job candidates have been receiving multiple offers. There continues to be excess demand for tech workers, as well as truck drivers. Manufacturers, on the other hand, have scaled back hiring plans somewhat.
Financial Developments
Small- to medium-sized banks in the District report that loan demand increased across all categories--particularly for commercial mortgages, as well as commercial and industrial (C&I) loans. Bankers also note an increase in demand for refinancing. Contacts report that credit standards were again unchanged across all loan categories. Bankers report that spreads of loan rates over cost of funds decreased, with narrowing most widespread on commercial mortgages and C&I loans. Finally, banks report that delinquency rates were unchanged on consumer loans but improved in all other loan categories.