Beige Book Report: New York
January 13, 2016
Economic activity in the Second District has remained essentially flat since the last report, while labor markets have continued to be tight. Selling prices remain generally stable, while service-sector firms indicate continued upward pressure on input prices and wages. Consumer spending has been sluggish, with tourism activity particularly weak. Manufacturers report that activity has continued to weaken. Residential real estate conditions continued to improve, while commercial real estate markets were little changed. Multi-family residential construction has held steady at a high level, while commercial construction has picked up somewhat. Finally, banks report weaker loan demand from the household sector, but lower delinquency rates, especially on residential mortgages.
Consumer Spending
Retailers report a sluggish holiday season, with spending flat to down moderately from 2014 levels. One major retail chain indicates that December sales in the region came in below plan and below 2014 levels, with particular weakness in New York City attributed to weak tourism spending. Retailers in upstate New York report that sales were roughly unchanged from a year earlier in both November and December. Some of the weakness was attributed to unseasonably mild weather, which held down sales of winter apparel. One contact notes that on-line business has been relatively strong despite the general weakness in sales. Retail inventories were characterized as on the high side, and pricing was more promotional than a year earlier.
New vehicle sales in upstate New York were reported to be strong in November but showed some signs of softening in December. Sales of used vehicles also softened but remain at fairly high levels. Wholesale and retail credit conditions were described as in good shape. Tourism activity, which was fairly sluggish in the prior report, has weakened further. In New York City, revenue at both hotels and Broadway theaters were down noticeably from a year earlier, particularly towards the end of December. Hotel business in the Buffalo and Albany areas appears to have held steady, though occupancy rates have tapered off somewhat due to an increase in the number of hotel rooms. Ski areas in upstate New York have struggled due to unseasonably warm weather. On a more positive note, the Conference Board's December survey shows consumer confidence rebounding sharply in the region.
Construction and Real Estate
The District's housing markets were mixed but, on balance, slightly improved in the final two months of 2015. The home resale market in western New York has shown continued strength, buoyed by strong demand and mild weather, with inventories still on the low side. Realtors across New York State more broadly also report brisk home sales, along with modestly rising prices. In northern New Jersey, prices for existing homes have been essentially flat; the inventory of distressed properties has come down but remains elevated, while the inventory of non-distressed homes remains low. Residential construction in the District has been mixed: single-family activity remains sluggish, with developers reluctant to build inventories, while multi-family construction (mostly rentals) continues to be brisk. New York City's co-op and condo market picked up somewhat toward the end of 2015, with sales activity described as fairly brisk--particularly for new high-end development. Selling prices for existing apartments rose moderately, while prices for newer luxury units have receded somewhat due to high inventories. Overall, nearly half of all transactions in New York City in the fourth quarter were at or above list price, which was less than in Q3 but still high by historical standards. New York City's rental market has shown signs of leveling off, as vacancy rates and concessions have increased; rents are still running 4 to 6 percent ahead of a year ago in Manhattan, but are up only marginally in Brooklyn and Queens.
Commercial real estate markets across the District were mostly steady. Office availability rates were little changed across most of the District, while asking rents rose modestly. Retail leasing remains slack, with vacancy rates steady at high levels in and around New York City, as well as in upstate New York. Commercial construction activity has picked up somewhat but remains at a subdued level.
Other Business Activity
The labor market has remained mostly strong in the closing weeks of 2015. Two major New York City employment agencies and one upstate agency report that hiring activity was more brisk than usual in December, which is typically a slow month. One contact notes that qualified candidates for temp jobs have been almost impossible to find, leading to more hiring of permanent workers. Most business contacts report steady to increasing employment at their firms, with the exception of manufacturing, where more contacts say they are reducing than expanding their workforce. In general, service sector firms, as well as employment agencies, expect further strengthening in the labor market in 2016.
Manufacturers report that both selling and input prices are generally stable. Service firms report stable selling prices but rising input prices, as well as some acceleration in wages. In general, contacts report that business activity was sluggish in late 2015, particularly in the manufacturing sector. Contacts have also grown somewhat less optimistic about the near-term outlook.
Financial Developments
Small to medium-sized banks in the District report weaker demand for consumer loans and residential mortgages, but steady demand for commercial mortgages and C&I loans. Credit standards were unchanged across all loan categories. Banks report some narrowing in spreads of loan rates over cost of funds across all loan categories, with the decrease in spreads most prevalent for commercial mortgages. There was little change seen in the average deposit rate. Finally, bankers report lower delinquency rates across all loan categories, particularly on residential mortgages.