Beige Book Report: New York
March 02, 2016
Economic activity in the Second District has remained generally flat since the last report, while labor markets continue to tighten. Selling prices were little changed, while service-sector firms report continued upward pressure on wages and other input prices. Manufacturers report further weakening in activity, and service-sector firms also note some recent contraction. Consumer spending has been steady to up slightly in early 2016, while tourism activity has remained sluggish. Residential real estate markets showed scattered signs of softening, while commercial real estate markets were little changed. Multi-family residential construction has held steady at a high level, while commercial construction has weakened. Finally, banks report a pickup in loan demand from the commercial sector but further weakening in household loan demand, and little change in delinquency rates.
Consumer Spending
Following a sluggish holiday season, retailers report some improvement in January and early February, with spending up slightly from early 2015 levels. Unseasonably mild weather in January buoyed shopper traffic somewhat but hampered sales of cold-weather merchandise. One major retail chain indicates that sales were ahead of plan in January but slipped below plan in early February. Retailers in upstate New York report that sales picked up slightly in January and early February. Generally, contacts note a more promotional environment than a year ago. Most indicate that inventories are at or near desired levels, though there are some reports of a glut of cold-weather merchandise. New vehicle sales in upstate New York are reported to be steady at a high level in January and early February, running moderately above comparable 2015 levels, while sales of used vehicles softened further. Auto dealers describe wholesale and retail credit conditions as favorable.
Tourism activity has been stable at a fairly weak level. At New York City hotels, both occupancy rates and room rates continue to run below year-earlier levels--reflecting a combination of weaker demand from international travelers and increased supply of hotel rooms. Broadway theaters, on the other hand, have seen some pickup since the beginning of the year; although the January 23rd blizzard closed theatres on a usually busy day, both attendance and revenues bounced back quickly and have been running ahead of 2015 levels since. Many winter activities and events in upstate New York have been adversely affected by the unseasonably mild winter, though the mid-February cold spell provided some relief. The Conference Board's January survey shows consumer confidence holding steady in the region.
Construction and Real Estate
The District's housing markets were stable to slightly softer in early 2016. In western New York, housing activity has reportedly slowed somewhat, in line with normal seasonal patterns, while contacts are optimistic about the outlook for the upcoming spring season. Statewide, sales activity was steady at an elevated level, while selling prices remained flat and little changed from a year earlier. Similarly, home resale prices are reported to be essentially flat in northern New Jersey, while both sales activity and inventory levels are characterized as low. One building industry contact notes that home renovation activity has been increasing, and that sub-contracting business seems to be robust.
New York City's co-op and condo sales market has slowed somewhat since the beginning of the year, with both prices and activity down modestly from late-2015 levels. The city's residential rental markets have also been somewhat softer. Rents on Manhattan apartments have been steady to somewhat lower so far this year, while rents in Brooklyn and Queens have increased at a slower pace than in 2015. A major New York City appraisal firms also notes that the high end of both the purchase and rental markets has been particularly sluggish, reflecting excess supply; a similar pattern prevails for high-end rental markets across the District more broadly.
Office markets have been stable across the District, with both availability rates and asking rents little changed since the beginning of the year. New office construction has weakened further; a good deal of new office space is under construction in Manhattan but little is in the works across the rest of the District. Single-family construction has generally remained sluggish, while multi-family development has been robust. In northern New Jersey, most of the recent apartment construction has been rental buildings, whereas in New York City, it has been largely condos.
Other Business Activity
The labor market has been steady to stronger in early 2016, with some pickup in wages. One major New York City employment agency reports across-the-board strength in hiring activity and notes an increasingly pronounced shortage of qualified candidates. This contact maintains that employers have become more open to negotiating starting salaries upward. Another agency in the city characterizes the job market as tight but stable, with some pickup in wages. A major agency in upstate New York also describes the job market as strong and notes increased hiring in light industrial fields, such as assembly and technicians. More broadly, service-sector businesses in the region report that they are expanding employment, on net, while manufacturers say they are holding employment steady; however, both groups of firms plan to hire, on net, in the months ahead.
Manufacturers in the District report continued weakening in activity, while service-sector firms now also note that business has softened. Service firms report continued wage pressures but some deceleration in their input prices overall, while manfuacturers report steady input prices. Both manufacturers and service firms report that their selling prices remain little changed, though the latter group expects prices to increase in the months ahead.
Financial Developments
Small- to medium-sized banks in the District report weakening demand for consumer loans and residential mortgages but rising demand from commercial borrowers. Bankers report that credit standards remained unchanged across all loan categories. Bankers reported narrowing spreads of loan rates over cost of funds across all loan categories. The decrease in spreads was most prevalent for commercial mortgages. Respondents also reported no change in the average deposit rate. Finally, banks report lower delinquency rates on commercial mortgages but higher delinquencies on consumer loans. Delinquency rates on both residential and commercial mortgages were little changed.