Beige Book Report: New York
December 2, 2015
Economic activity in the Second District has leveled off since the last report, though labor markets have shown some further signs of tightening. Selling prices remain generally stable, while service-sector firms indicate ongoing upward pressure on input prices and wages. Consumer spending has been mixed but somewhat weaker, on balance, while tourism has remained sluggish. Manufacturers continue to report weakening in activity. Housing markets continued to improve, while commercial real estate markets were mostly stronger. Multi-family residential construction has been steady at a high level, while commercial construction has remained fairly subdued. Finally, banks report a pickup in demand for commercial loans and mortgages but slightly weaker demand for consumer loans; they also note some improvement in delinquency rates for commercial borrowers but little change on household loans.
Consumer Spending
Retailers report sluggish results for October and early November. One major retail chain indicates that sales in the region came in below plan and below 2014 levels in both months; another large chain indicates that sales were on plan in October but fell below plan in early November. One contact maintains that the strong dollar, through its effect on tourism, has continued to affect sales--especially in New York City--while a few contacts note that mild weather has hampered sales of seasonal merchandise. Retailers in upstate New York report that sales have generally been flat in recent weeks. Retail inventories, though up somewhat, are generally said to be at satisfactory levels, and selling prices are reported to be generally steady.
Auto dealers in upstate New York characterize new vehicle sales as fairly strong in October and early November, and up noticeably from comparable 2014 levels. Some improvement was also noted in sales of used vehicles. Wholesale and retail credit conditions continue to be described as in good shape. Tourism activity has remained sluggish--particularly in New York City, where revenues at both hotels and Broadway theatres have continued to run at or slightly below comparable 2014 levels. Separately, the Conference Board's October survey shows consumer confidence slipping in the region (NY, NJ, PA), as well as in New York State.
Construction and Real Estate
The District's housing markets have been mixed thus far in the fourth quarter. The home resale market in western New York has remained fairly strong, with a normal seasonal slowing noted in sales activity; however, demand for higher-end properties has reportedly slowed. Similarly, some weakening is reported at the high end of New York City's co-op and condo market, reflecting both softer demand and a supply glut. Aside from the very high-end, however, inventories across New York City remain lean, and sales activity has been steady at a fairly sturdy level. Northern New Jersey's housing market has continued to improve gradually: resales are running ahead of a year earlier, though prices have leveled off. The backlog of distressed properties, though still high, now appears to be receding across northern New Jersey.
Residential construction has been steady. Multi-family continues to outpace single-family construction, with the mix still weighted more toward rentals; new development is largely occurring in or near New York City and near suburban rail hubs. However, there are signs of softening in rental markets in Manhattan, Brooklyn and Queens: the inventory of available units has risen and rents have edged down. Still, one contact notes that rents on apartments in both Manhattan and Brooklyn continue to run ahead of last year.
Commercial real estate markets across the District were mostly steady. Office availability rates are up slightly, but still fairly low, on Long Island, down slightly in Westchester and Fairfield counties, and little changed across the rest of the District. Office asking rents are up moderately in New York City and parts of northern New Jersey, down slightly across upstate New York, and generally flat elsewhere. The market for industrial space, on the other hand, has continued to tighten, with availability rates declining further and rents running about 5-6 percent ahead of comparable 2014 levels. Commercial construction activity has remained steady, with relatively few new projects breaking ground in recent months.
Other Business Activity
The labor market has been mixed but still fairly strong in recent weeks. More manufacturers say they are reducing than expanding their workforce. Moreover, fewer service-sector firms report that they are hiring. On a more positive note, two major New York City employment agencies report that hiring activity has remained fairly brisk, and a major agency in upstate New York characterizes hiring as steady at a moderate pace. Demand is described as particularly strong for workers in information technology and human resources; and professional services and consulting firms are said to be more actively hiring. One employment agency contact notes that more businesses are inquiring about salaries and anticipates some possible upward recalibration of pay at the start of the new year. Looking ahead to the next year, both manufacturers and service-sector businesses expect to increase employment, on net.
Manufacturers report that both selling and input prices are generally stable. Service firms report stable selling prices but continued upward pressure on wages and input prices more broadly. As regards general business conditions, overall activity at service-sector firms appears to have leveled off, while manufacturers, on balance, report further weakening in business activity. Contacts in both sectors are somewhat less optimistic about the near-term outlook than earlier in the year.
Financial Developments
Small to medium sized banks in the District report mixed demand for loans. Specifically, bankers indicate decreased demand for consumer loans, little change in demand for residential mortgages, but increased demand for commercial and industrial (C&I) loans and especially for commercial mortgages. Bankers again report decreased demand for refinancing. Bankers note that credit standards were unchanged across all loan categories, except on C&I loans, where some tightening was reported. Bankers indicate a decrease in spreads of loan rates over cost of funds across the commercial loan categories but little change in spreads on consumer loans and residential mortgages. Finally, bankers report declining delinquency rates on commercial mortgages and C&I loans, but a leveling off in delinquencies on consumer loans and residential mortgages.