May 31, 2017
Summary of Economic Activity
Economic activity in the Second District has been essentially flat since the last report, while labor markets have remained tight. Input price pressures have persisted, while selling prices have been steady to up modestly. Manufacturers indicated that business activity has flattened out, while service-sector contacts have continued to report steady to modestly expanding activity. Consumer spending has been flat since the last report, while consumer confidence has retreated from a multi-year high. Housing markets were mixed but, on balance, steady since the last report. Commercial real estate markets were also mixed: office markets were mostly steady, industrial markets were steady to slightly stronger, while retail markets weakened further. New construction activity has been sluggish across most of the District, on both commercial and residential structures. Banks reported that loan demand was steady to stronger, while delinquency rates declined.
Employment and Wages
The labor market has remained tight. Contacts at employment agencies characterized the job market as steady and fairly tight--especially for engineers and other tech workers, but also for skilled workers more generally. Two major New York City agencies characterized hiring as steady at a moderate level, while an upstate agency notes some pickup in the second quarter.
Manufacturers have continued to add jobs in recent weeks, and employment is also reported to be on the rise among businesses in education & health services, transportation, and finance. Businesses in other service industries report steady employment levels. Looking ahead, firms in manufacturing and most service industries indicated that they expect employment to rise, on balance, in the months ahead.
Contacts across all service industries reported moderate wage growth and expect comparable increases to continue in the months ahead. Employment agency contacts in New York City noted a bit more upward pressure on wages and salaries--employers were said to be increasingly negotiable on pay, but mainly for highly sought-after, skilled, and specialized workers. An upstate New York agency indicated that wages have held steady.
Prices
Business contacts continued to note rising input costs but only modest increases in selling prices. Those in the retail, wholesale, transportation, and leisure & hospitality industries reported modest increases in selling prices, on balance, while businesses in other sectors indicated little changed in prices received.
General merchandise retailers reported that prices have been flat, and New York City hotels indicated that room rates have held steady. Broadway theaters, in contrast, reported that average ticket prices have picked up noticeably in recent weeks and have been running roughly 15 percent above comparable 2016 levels.
Consumer Spending
Retailers reported that sales were steady to down moderately. Retailers in upstate New York reported that sales have been essentially flat in April and early May. A major retail chain noted that same-store sales fell below plan and were down from a year earlier in April but have picked up somewhat in May. Sales in New York City slightly lagged the region overall. Inventories were generally said to be at desired levels. Retail contacts have become somewhat less optimistic about the near-term sales outlook.
Auto dealers in upstate New York reported that sales of new and used vehicles softened in April and were lower than a year earlier--a trend seen continuing into early May. One contact noted that inventories of some new, mainly domestic, vehicles makes have swelled somewhat, though inventories generally remain at or near desired levels. Retail and wholesale credit conditions were reported to be in good shape, though there has been further tightening for sub-prime auto loans.
Consumer confidence in the Middle Atlantic states (NY, NJ, PA) retreated in April after reaching a 16-year high in March.
Manufacturing and Distribution
Manufacturers reported that business activity has leveled off thus far in the second quarter, following brisk growth in the first three months of the year. Businesses in the wholesale trade and transportation industries also reported a pause in growth. Looking ahead, however, manufacturers remain widely optimistic about the near-term outlook, while those in transportation and wholesale trade remain somewhat upbeat.
Services
Businesses in most service industries noted little change in general business activity, while contacts in education & health services continued to indicate steady, moderate growth. Looking ahead, however, businesses in education & health were generally the least sanguine about the outlook, while contacts in the information, professional & business services, and leisure & hospitality industries were fairly optimistic.
Tourism has picked up somewhat in New York City. Broadway theaters reported that business improved noticeably in April and the first half of May, with attendance running roughly 10 percent ahead of 2016 levels and revenues up more than 25 percent.
Real Estate and Construction
Housing markets across the District have been mixed but, on balance, steady since the last report. New York City's rental market has remained mostly steady, though increased landlord concessions have further lowered effective rents and spurred some pickup in leasing, especially at the high end. In contrast, rents continued to rise across northern New Jersey, the Lower Hudson Valley, southwestern Connecticut and upstate New York.
The sales market for homes has strengthened in northern New Jersey and across upstate New York but has been essentially flat in New York City. Home resale activity across downstate New York, and especially in New York City, has slowed to more normal levels, following an unusually brisk first quarter. Prices of New York City co-ops and condos have remained mixed, rising at the low end, falling at the high end, and holding steady in the middle. Inventories have continued to edge up in Manhattan but have fallen to exceptionally low levels elsewhere--mostly notably in upstate New York and northern New Jersey.
Commercial real estate markets have been mixed in recent weeks. The market for office space has generally been steady, as both availability rates and asking rents have not changed significantly. The industrial market, which had been strengthening steadily over the past year, has lost some momentum in recent weeks but has continued to tighten. While availability rates have largely leveled off, rents have continued to climb, running 8-12 percent ahead of a year earlier. In contrast, the market for retail space has softened further: vacancy rates reached multi-year highs throughout the District, while asking rents were little changed.
Finally, both residential and commercial construction have remained sluggish overall. New starts of single-family homes have remained subdued, while new multi-family construction has slowed substantially. On the commercial side, although there is a good deal of office construction in progress--especially in New York City--there has been very little new office development, except in northern New Jersey.
Banking and Finance
Bankers reported stronger demand for consumer loans and residential mortgages but no change in demand for commercial loans or mortgages. Bankers also indicated that refinancing activity decreased for all types of loans. Credit standards were reported to be unchanged across all loan categories. Banks noted wider spreads of loan rates over cost of funds for consumer loans but no change in spreads for other loan categories. Contacts also reported an increase in the average deposit rate, on net. Delinquency rates were said to be lower across all loan categories--particularly residential mortgages.