Beige Book Report: New York
April 13, 2016
Economic activity in the Second District has grown at a modest pace since the last report, and labor markets have continued to strengthen. Businesses across a broad array of sectors, including manufacturing, report some pickup in activity. Selling prices were little changed, though businesses report continued upward pressure on input prices. Consumer spending has been steady, and tourism activity has picked up slightly. Residential real estate markets improved modestly, while commercial real estate markets were mixed. Finally, banks report further strengthening in loan demand and improvement in delinquency rates.
Consumer Spending
Retailers report that sales were generally steady in February and March, with same-store sales little changed from comparable 2015 levels. Retail contacts indicate that the unseasonably mild winter led to an overhang of winter apparel inventory, but otherwise weather was not much of a factor. One major retail chain indicates that sales were on plan in February but slipped below plan in March, while another describes sales as below plan in both months. Retailers in upstate New York report that consumer spending has remained restrained, despite a pickup in shopper traffic. The ongoing shift toward on-line shopping has continued to constrain traditional retail sales. Inventories are generally reported at or near desired levels, aside from an overhang of cold-weather merchandise, which is being whittled down by steep discounts and promotions. Tourism activity has picked up modestly but remains sluggish.
New vehicle sales in upstate New York are reported to be steady to up modestly, at a high level in February and March. Sales have been buoyed by a combination of mild weather, attractive lease options, and low gas prices in early March. However, sales of used vehicles remain soft. Auto dealers describe wholesale and retail credit conditions as favorable. The Conference Board's March survey shows consumer confidence in the Middle Atlantic states (NY, NJ, PA) retreating modestly, after climbing to an 8-month high in February.
Construction and Real Estate
The District's housing markets have improved modestly in the latest reporting period, though rental markets have softened; multi-family residential construction has continued to strengthen. In general, sales activity was buoyed by mild weather in both February and March. Housing markets in upstate New York picked up somewhat in March, with strengthening sales and scattered reports of bidding wars, and real estate agents expect 2016 to be a strong year. Northern New Jersey's market for single-family homes continues to improve modestly; despite strong demand and lean inventories, prices are being restrained by a sizable overhang of distressed properties, which is coming down only gradually. New York City's co-op and condo market has generally continued to strengthen, particularly in Brooklyn, as both activity and prices have risen moderately. However, these trends do not hold for the high end of the market, where a glut of new development has put downward pressure on prices. Rental markets have softened, most notably at the high end. While rents remain on a moderate upward trajectory in Brooklyn and parts of northern New Jersey, rents across most of the region have retreated and, in most areas, are now down from a year ago.
Commercial real estate markets have been mixed in recent weeks. Office markets across the District were mostly steady in the first quarter, though asking rents have moved up modestly in Brooklyn, Queens, and northern New Jersey. The market for retail space has weakened, with vacancy rates rising to multi-year highs in New York City, as well as in northern New Jersey and upstate New York. In contrast, the market for industrial space has strengthened: vacancy rates are at or near multi-year lows across most of the District, while rents are running 5-10 percent ahead of a year ago. Industrial and warehouse construction has picked up in northern New Jersey, but elsewhere commercial construction activity remains sluggish.
Other Business Activity
Business contacts across the District report a rebound in business activity, following a brief slump early this year. Both manufacturing and service-sector contacts report little change in selling prices. In contrast, service-sector firms report continued upward cost pressures, and manufacturing contacts note some pickup in input prices.
The labor market has been increasingly robust in recent weeks, with labor shortages in certain areas and some acceleration in wages. Two major New York City employment agencies report continued improvement in hiring activity and moderate increases in salaries. One notes that more candidates are getting multiple job offers and that employers are becoming less picky about prospective hirees' skills and experience. However, a major employment agency in upstate New York reports some slowing in hiring and notes that employers have become more selective. Hiring remains subdued at manufacturing firms and large financial firms but brisk in most service industries. More service-sector contacts than in the last report expect to raise wages in the months ahead.
Financial Developments
Bankers report further strengthening in loan demand. In particular, bankers note a widespread increase in demand for residential mortgages, and continued growth in demand for commercial mortgages and C&I (commercial and industrial) loans. On the other hand, in the case of consumer loans, bankers report little change in demand. Banks report that credit standards were unchanged across all loan categories. Similarly, bankers indicate no change in spreads of loan rates over cost of funds across all loan categories except commercial mortgages, for which bankers reported narrower spreads. Bankers report declining delinquency rates on home mortgage loans, C&I loans and commercial mortgages, while they report steady delinquency rates on consumer loans.