June 1, 2016
Economic activity in the Second District has been generally flat since the last report, while labor markets remain tight. Selling prices are reported to be little changed, though contacts note continued upward pressure on input prices and wages. Manufacturers report renewed contraction in activity, while service-sector businesses indicate steady to modestly rising activity. Consumer spending weakened, and tourism activity has been sluggish. Residential real estate markets were mixed but on balance softer, while commercial real estate markets were steady to slightly stronger. Finally, banks report further strengthening in loan demand and improvement in delinquency rates.
Consumer Spending
Retailers report that sales weakened in April and remained soft in early May, with same-store sales down moderately from comparable 2015 levels and below plan. Contacts in both upstate New York and the New York City metro region note that unseasonably cool weather contributed to the weak sales performance, though it was not the predominant factor. Retailers report that inventories are on the high side--particularly for warm weather apparel--and note more price discounting than usual. The trend toward on-line shopping has continued to constrain traditional retail sales.
New vehicle sales in upstate New York are reported to be steady at a fairly high level in April, though there were scattered signs of softening in early May. Inventories of new vehicles are reported to be somewhat on the high side for this time of year. Sales of used vehicles were also described as steady in April with some signs of a pickup in May. While credit conditions generally remain in good shape, one contact notes some tightening at the low end.
Tourism activity has been mixed but generally sluggish. Hotels in both New York City and across parts of upstate New York indicate that occupancy rates and revenue per room have been running below comparable 2015 levels. Similarly, attendance and particularly revenues at Broadway theaters have softened a bit in recent weeks but remain slightly ahead of a year earlier. The Conference Board's April survey shows consumer confidence in the Middle Atlantic states (NY, NJ, PA) rebounding modestly in April, after a steep decline in March.
Construction and Real Estate
The District's home sales and rental markets have been mixed but, on balance, softer thus far in the second quarter, with the high end of the market in many areas struggling from an over-supply and weak demand. Multi-family residential construction has remained strong, while single-family construction has risen modestly. Housing markets in upstate New York showed further signs of strength in April and early May, with brisk sales activity and tight inventories of existing homes; multiple bids continue to be common in more desirable areas. Single family home sales in Northern New Jersey have been restrained by lean inventories, while prices have been held down by a stubbornly large overhang of distressed properties. In contrast, home sales have picked up noticeably in the Lower Hudson Valley, Long Island and Fairfield County, Connecticut, though prices have thus far risen only modestly. New York City's co-op and condo market appears to have lost further momentum, most noticeably in Manhattan and especially at the high end, where a growing excess of new development is being met with tepid demand. Rental markets in and around New York City have been mixed, with particular weakness at the high end of the market. In Manhattan and Queens, markets have softened further with rents slipping slightly below year-earlier levels. However, rental markets in northern New Jersey and Brooklyn (again, except at the high end) have remained resilient, characterized, respectively, by sturdy demand and tight inventories.
Commercial real estate markets have been mostly stable thus far in the second quarter. In Manhattan, office availability rates edged up, and asking rents were flat, though still up moderately from a year ago. Across the rest of the New York City metro area, however, office availability rates edged down and asking rents climbed. In upstate New York, availability rates were steady to down slightly, and asking rents were little changed. Industrial markets continued to tighten across the District, with asking rents continuing to climb and vacancy rates edging down to multi-year lows.
Other Business Activity
Business contacts across the District are somewhat less upbeat about business conditions than in the last report. Service-sector contacts report that business activity has been steady to rising modestly in April and early May, while manufacturing contacts report a renewed decline in activity. Both manufacturing and service-sector contacts report little change in selling prices but moderate upward cost pressures.
The labor market has continued to tighten in recent weeks. While employment levels have risen only modestly, there have been more indications of labor shortages and some acceleration in wages. Manufacturers report little change in employment at their firms, and service-sector businesses indicate only modest increases in employment; however, contacts in both sectors report that they plan to increase staffing levels in the months ahead. A sizable share of service-sector contacts continues to report that they are raising wages. Moreover, two major New York City employment agencies and one upstate agency report continued improvement in hiring activity and a pickup in wage pressures. Contacts note that employers have grown more flexible on salaries.
Financial Developments
Small to medium sized banks in the District report that overall loan demand has strengthened. There were widespread increases in demand for consumer loans, residential mortgages and commercial mortgages; demand for commercial & industrial loans, on the other hand, was reported to be little changed. Bankers report that credit standards were unchanged across all loan categories. Contacts indicate narrower spreads of loan rates over cost of funds across all categories except consumer loans, where spreads were reported to be unchanged. Respondents also report an increase in the average deposit rate. Finally, bankers report lower delinquency rates across all loan categories, particularly consumer loans.