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New York: September 2017

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Beige Book Report: New York

September 6, 2017

Summary of Economic Activity
Economic activity in the Second District has picked up somewhat since the last report, expanding at a moderate pace, and labor markets have remained tight. Input prices continued to rise moderately, while selling prices were flat to up modestly. Manufacturers noted a brisk pickup in business activity, while service-sector businesses reported more moderate gains. Consumer spending expanded modestly since the last report, tourism picked up somewhat, and consumer confidence has remained close to a cyclical high. Housing markets were somewhat stronger, though sales volume in many areas has been restrained by a dearth of homes on the market. Commercial real estate markets were generally steady. New residential construction activity has slowed slightly, while commercial construction has been flat. Banks reported some tightening in credit standards on commercial mortgages.

Employment and Wages
The labor market has remained tight. One New York City employment agency reports further strengthening in the labor market, with brisk hiring in the usually slow summer months. However, a major agency in upstate New York and another downstate both characterize the market as steady. Businesses across a broad array of industries have been reporting widespread difficulty finding qualified workers--particularly in rural areas.

Manufacturers reported that hiring activity has been subdued and some have scaled back hiring plans for the months ahead. Businesses in the transportation and information sectors reported some pickup in hiring, while those in retail trade and leisure & hospitality noted steady to slightly lower employment. Businesses in other service industries report little change in staffing levels.

Overall, wages have risen modestly, though contacts in retail, education & health, information, and real estate report more widespread wage hikes. One employment agency maintains that employers have become more negotiable on both compensation and required skill sets.

As in the last report, businesses indicated that input prices rose moderately. Businesses in wholesale trade, education & health, and leisure & hospitality noted modest growth in selling prices, while those in other sectors indicated little change.

General merchandise retailers reported that prices have been steady, on balance, and New York City hotels indicated little change in room rates. Broadway theaters, on the other hand, continued to report 10-13 percent gains in ticket prices from a year earlier.

Consumer Spending
Retailers reported that sales have been a bit firmer in recent weeks. One major chain reports that sales picked up and have been running ahead of plan in July and the first few weeks of August. Similarly, retailers in upstate New York have seen some pickup in both traffic and sales in recent weeks. Inventories were generally reported to be in good shape.

Auto dealers in upstate New York reported that sales of new vehicles were steady at high levels in July and early August and were up from comparable 2016 levels. Vehicle inventory levels have come down somewhat but are still higher than desired. Used vehicle sales have been steady to up moderately, while prices have softened somewhat. Retail and wholesale credit conditions were characterized as being in good shape.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) has retreated from its multi-year high set during the spring but has remained at a high level.

Manufacturing and Distribution
Manufacturers reported that business activity has expanded at an increasingly brisk pace since the last report. Contacts in the transportation industry, however, continued to report modest growth, while those in wholesale trade noted that activity was generally flat. Looking ahead, manufacturers remained broadly optimistic about the near-term outlook, while those in transportation and wholesale trade expressed a more moderate degree of optimism.

Businesses in most service industries reported some pickup in business activity. Contacts in both professional & business services and education & health services noted modest increases in activity. Service sector businesses were generally optimistic about the near-term outlook, except in the leisure & hospitality industry. Broadway theaters reported stronger than usual attendance and revenues for the summer months. In New York City, while tourism has picked up somewhat, advance bookings for the months ahead have been softer.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, a bit stronger. Real estate contacts in upstate New York report that low inventories of homes on the market have restrained sales activity but have driven prices to new highs, with homes often selling for above the asking price. Low inventories and rising demand have also started to push home prices up in the suburbs around New York City--except at the high end of the market, where there remains an excess supply. New York City's condo and co-op market has been mixed; home prices have risen at a roughly 5 percent annual rate in Brooklyn and Queens but have been flat in Manhattan. Here too, an oversupply at the high end has kept that segment of the market soft. Sales activity has picked up, as sellers have cut prices, especially at the high end.

Rental markets have also been mixed. In New York City, effective rents have drifted down--face rents have been flat, while landlord concessions have increased. Thus far, these rising concessions have kept vacancy rates from rising. In northern New Jersey and parts of upstate New York, rental markets have been fairly robust, with rents rising steadily.

Commercial real estate markets have been mixed but steady, on balance. The market for office space has softened a bit in upstate New York and Long Island but tightened modestly in New York City. The market for industrial space, which had been tightening for quite some time, appears to have lost some momentum. Availability rates were steady near multi-year lows in downstate New York and northern New Jersey but edged down to new lows in upstate New York. Still, industrial rents have continued to rise, running 8-10 percent above comparable 2016 levels.

Single-family home construction has been subdued--except at the high end of the market--while new multi-family development has slowed. While there continues to be a good amount of multifamily construction in progress throughout the District, new starts have slowed considerably, except in northern New Jersey. Similarly, new commercial development has largely ground to a halt, except in northern New Jersey, where new construction starts for both office and industrial space remain fairly brisk.

Banking and Finance
Small to medium sized banks in the District reported that loan demand was steady overall but mixed by category--weaker demand for consumer loans and residential mortgages, no change in demand for commercial mortgages, and higher demand for C&I loans. Bankers also noted a moderate decrease in refinancing activity. Some tightening in credit standards was reported for commercial mortgages, but no change was indicated for other loan categories. Contacts reported lower spreads of loan rates over cost of funds for residential mortgages and C&I loans. Finally, banks reported steady delinquency rates across all loan categories.

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