Beige Book Report: New York
July 18, 2018
Summary of Economic Activity
Economic activity in the Second District has continued to expand at a moderate pace since the last report. The labor market has remained tight, while wage growth has mostly stayed steady. Input price increases have remained fairly widespread, and consumer price inflation continued to run a bit higher than earlier this year. Activity in the manufacturing and distribution industries grew at a fairly brisk pace, while growth in most service industries has been more subdued. Consumer spending has been steady to up slightly in recent weeks, with tourism remaining fairly robust. Housing markets have been somewhat stronger, on balance, while commercial real estate markets have generally softened. Finally, banks reported continued growth in loan demand and little change in delinquency rates.
Employment and Wages
The labor market has remained tight across the District. Businesses reported particular trouble filling senior positions and finding technically skilled workers, especially in IT. One business contact observed that almost all job-seekers are already employed. A New York City employment agency noted that clients have had difficulty adjusting to a city law prohibiting prospective employers from asking about salary history or using it as a guide to compensating new hires.
Hiring activity has been steady overall but mixed by industry. Business contacts in manufacturing, wholesale, retail, and finance reported a pickup in hiring activity, while those engaged in information and professional & business services noted some pullback in hiring. Contacts in the transportation industry noted further shrinkage in their workforce. Separately, a payroll service firm observed that job growth at small businesses has slowed somewhat recently. A major utility firm remarked that devoting more resources to vocational training and building relationships with local high schools and colleges, has made it easier for them to fill job openings.
Wage growth has generally remained steady overall but somewhat more brisk than last year. Wages were reported to be flat in the education & health and transportation sectors but rising in other sectors. The most widespread gains were reported in retail & wholesale trade and leisure & hospitality.
Prices
Businesses reported ongoing widespread hikes in input prices. The most widespread increases were in retail & wholesale trade, education & health, and real estate. Manufacturers and leisure & hospitality firms noted some diminution in input price pressures since the prior report. Contacts in almost all sectors anticipated further increases in the months ahead.
As for selling prices, wholesalers continued to report widespread price hikes, and businesses in leisure & hospitality and real estate noted some acceleration. Prices for Broadway theater tickets rose fairly sharply in June and were up nearly 15 percent from a year earlier. Retail contacts noted somewhat less discounting than a year ago, resulting in a modest hike in effective selling prices. Similarly, auto dealers reported some increase in average used car prices and fewer incentive offers on new vehicles. Businesses in other industries reported that prices were mostly stable. Looking ahead, a sizable share of firms in leisure & hospitality, wholesale trade, and real estate said they anticipate price hikes.
Consumer Spending
Retail sales were steady to up slightly in May and June running roughly on plan. A major retail chain noted that sales were on plan and up modestly from a year earlier, with New York City stores continuing to post relatively strong results, in good part driven by tourism.
New vehicle sales in upstate New York were soft in May and June, continuing to run short of year-earlier levels. Sales of used cars have been more robust and continued to rise modestly. Vehicle inventories remained at or above desired levels. Dealers indicated that retail and wholesale credit conditions remained in good shape.
Consumer confidence in the Middle Atlantic states (NY, NJ, PA) edged up to a cyclical high in June, led by an historically positive assessment of the job market.
Manufacturing and Distribution
Both manufacturers and wholesale distributors indicated that activity continued to expand at a brisk pace since the last report. Transportation firms reported more subdued growth. Regarding the near-term business outlook, contacts in the wholesale and transportation sectors continued to express widespread optimism. Manufacturers remained optimistic, on balance, but have become less so than earlier in the year. A number of manufacturing contacts remarked that tariffs have raised their costs. Moreover, uncertainty about future trade policy was cited as a major concern, particularly in parts of upstate New York, where there is substantial trade with Canada.
Services
Service-sector firms continued to report minimal to modest growth in activity. Contacts in professional & business services, education & health, and leisure & hospitality indicated modest growth, while those in the information industry continued to report flat activity. Looking ahead, leisure & hospitality businesses remained glum about near-term prospects, but contacts in the other service industries expressed fairly broad optimism.
Tourism has been fairly robust in recent weeks. New York City hotels reported a moderate pickup in both occupancy rates and revenues. Similarly, Broadway theaters reported a modest pickup in attendance and a marked pickup in revenues, which were up roughly 16 percent from a year earlier in May and June.
Real Estate and Construction
Housing markets across the District have been mixed but, on balance, somewhat stronger since the last report. Across much of the District, a limited supply of homes on the market has restrained sales activity and boosted prices. The market in the Buffalo metro area has been particularly robust, with strong demand and lean inventories driving up prices and producing many bidding wars. One exception to this trend has been the Manhattan co-op and condo market, where inventories have risen, sales activity has receded, and prices have been flat to modestly lower--partly attributed to some drop-off in investor purchases and foreign buyers. In and around New York City, the high end of the sales market continues to lag. One industry contact surmised that more limited deductibility of homeowner costs under the new tax law has been a factor in restraining demand.
The apartment rental market has been mixed. Effective rents are flat to down modestly across New York City, though demand for larger rental apartments has picked up recently--reportedly reflecting both rent reductions and a shift away from homeownership. In northern New Jersey, upstate New York, and the suburbs around New York City, however, demand has been robust and rents have continued to trend up moderately.
Commercial real estate markets have been steady to softer. Office availability rates were steady to up slightly, and asking rents continued to drift down across downstate New York, though they have risen modestly across northern New Jersey and upstate New York. The market for retail space continued to slacken, except in upstate New York, where vacancy rates were steady and rents were up moderately from a year ago. The industrial market continued to strengthen in northern New Jersey but has stabilized elsewhere across the District.
New multi-family construction starts have been steady to somewhat weaker. Office construction has picked up slightly across upstate New York but has remained moribund across the rest of the District. New industrial development has slowed as well. While new construction--both residential and commercial--has been sluggish, ongoing construction activity has remained strong.
Banking and Finance
Small to medium-sized banks in the District reported increased demand for consumer loans, residential mortgages, and commercial mortgages, but no change in demand for C&I loans and refinancing activity. Bankers reported tightening credit standards for commercial loans and mortgages. Banks noted an increase in the average deposit rate and narrowing loan spreads across all categories. Finally, banks reported lower delinquency rates for C&I loans but no change in delinquencies across all other loan categories.
For more information about District economic conditions visit: www.newyorkfed.org/data-and-statistics/regional-data-center/index.html