Beige Book Report: New York
September 7, 2016
There has been little to no economic growth in the Second District since the last report, though labor markets remain tight. Contacts note continued moderate pressure on input prices and wages but little change in selling prices. Manufacturers report that business activity has been flat, on balance, while service-sector businesses note that activity has declined. Consumer spending was little changed, on balance, while tourism activity showed further signs of weakening. Residential real estate markets continued to be mixed with further weakening at the high end; however, commercial real estate markets strengthened. Residential and office construction has tapered off, while industrial construction has picked up. Banks report further strengthening in loan demand and continued improvement in delinquency rates across the board.
Consumer Spending
Retail merchandise sales were mixed but generally little changed in July and August. One major chain reports that sales were above plan in July but weakened substantially in August and were below plan; however, another major chain reports that sales, though below plan in both months have improved gradually. In contrast, retailers in upstate New York characterize sales as solid in both July and August and up from a year ago. More generally, retailers report steady prices on net; some contacts note more discounting than a year ago, while some indicate less. Inventories are widely described to be at satisfactory levels.
New vehicle sales in upstate New York are reported to have softened further in July and August. Part of the general weakness is attributed to reduced incentives from manufacturers. Inventories of new vehicles are reported to be mixed. The used car market has generally been soft, though there has been some pickup in demand for lower priced models. Retail and wholesale credit conditions generally remain favorable.
Tourism activity has been steady to softer since the last report. Hotels report that business has been flat to declining moderately. Attendance at Broadway theatres weakened in July and August and was running slightly below 2015 levels. Moreover, with average ticket prices down modestly, overall revenues have been running roughly 5 percent lower than a year ago. Consumer confidence in the Middle Atlantic states (NY, NJ, PA) slipped in July.
Construction and Real Estate
The District's housing markets have been mixed since the last report, with ongoing weakening at the high end. New York City's rental market has softened further in both Manhattan and the outer boroughs: rents on larger and luxury units have continued to slip and more landlords are offering concessions (e.g., free month's rent, waived fees), while rents on smaller units have been essentially flat. Vacancy rates across the city have remained steady near six-year highs. However, rental markets are still described as strong in areas of New Jersey close to New York City.
New York City's co-op and condo resale market has been mixed. There is a sizable overhang of unsold new developments--mostly luxury units--and prices of these, as well as high end resale units, have declined. However, sales activity has been robust in the lower and middle segments of the resale market, especially in Brooklyn and Queens, where inventories remain low and prices continue to climb. In Manhattan, resale inventory has risen in recent months, while prices have increased modestly. Realtors across New York State report that the market for existing homes remained robust in July, as sales activity was fairly solid and prices were up more than 8 percent from a year earlier. A Buffalo-area contact notes that prices have risen moderately, inventories remain tight, bidding wars remain fairly common, and real estate agents are extremely busy. In northern New Jersey, however, market conditions have been more sluggish, for both new homes and existing properties--particularly at the high end--as an overhang of distressed properties continues to hamper the market in many areas.
Commercial real estate markets have strengthened since mid-year. In Manhattan, office availability rates were little changed, but asking rents picked up in July and August. Elsewhere, office availability rates fell to new multi-year lows in northern New Jersey, Long Island, Westchester and across upstate New York, while asking rents in those areas were generally steady to up modestly. The industrial market has strengthened across the District: vacancy rates have fallen to 10-year lows, while asking rents have accelerated and are up roughly 10 percent over the past year. Much of this strength has been in northern New Jersey.
New residential construction has slowed somewhat, with multi-family activity tapering off and the single-family segment remaining sluggish. New office construction has slowed in New York City and remains moribund elsewhere; still there is a large volume of office space currently under construction across New York City and a moderate amount in northern New Jersey. In contrast, new industrial construction has been increasingly robust--particularly in northern New Jersey.
Other Business Activity
Contacts across the District generally report that business activity has weakened since the last report. Manufacturers report that activity has been essentially flat, on balance, while service-sector contacts indicate that it has declined. Both manufacturing and service-sector contacts continue to report little change in selling prices but continued upward pressure on input prices.
The labor market has remained tight since the last report. Both manufacturers and service firms report little change in staffing levels; service firms have scaled back hiring plans in recent weeks, while manufacturers expect staffing levels to be steady to lower in the months ahead. One major New York City employment agency reports that hiring activity has remained brisk during the usually slow summer months. However, two other agencies in the District report that demand for workers has been steady, albeit at strong levels. Wage pressures have picked up somewhat but remain modest. A trucking industry analyst notes that there remains a shortage of drivers, as firms do not have enough pricing power to enable them to afford raising salaries.
Financial Developments
Small to medium-sized banks in the District report stronger demand for all categories of loans--particularly residential mortgages. Bankers report that credit standards remained unchanged across all loan categories. Contacts report that spreads of loan rates over cost of funds narrowed across all loan categories--most notably for residential as well as commercial mortgages. Bankers indicate declining delinquency rates across all loan categories, with the most widespread declines reported for consumer loans.