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New York: October 2018

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Beige Book Report: New York

October 24, 2018

Summary of Economic Activity
Economic activity in the Second District has grown slightly since the last report. The labor market has remained very tight, and wage growth has remained moderate. Businesses reported increasingly widespread escalation in both input prices and selling prices, while prices of final goods and services have been steady or up modestly. Manufacturing and distribution activity continued to grow robustly, while growth has slowed in a number of service industries. Consumer spending was generally steady in recent weeks. Residential and commercial real estate markets have been mixed. Finally, banks reported some weakening in household loan demand and a modest pickup in delinquencies on home mortgages.

Employment and Wages
The labor market has remained very tight across the District. Employers continued to note difficulties finding qualified workers for various types of job openings. However, there have been scattered signs of softening in labor demand. One New York City based employment agency noted a lull in new postings in early October, and an upstate agency indicated some slowing in demand for contract workers.

Businesses in most industries report steady to modestly rising employment. In the finance, professional & business services, and manufacturing industries fewer contacts than last time indicated that they are adding workers. On the other hand, businesses in wholesale trade, leisure & hospitality, and education & health services noted some pickup in hiring activity. Retailers reported little change in staffing levels, and one large chain said they plan to hire roughly the same number of holiday-season workers as in 2017.

Wage pressures have remained fairly widespread. While businesses in most industries noted that wage growth has remained moderate thus far, a growing proportion reported that they plan to raise wages in the months ahead. A New York City employment agency noted a widening gap between salary expectations of job applicants and what employers are offering.

Businesses reported increasingly widespread hikes in both input and selling prices. Input price pressures were reported across all industry sectors; they picked up in the wholesale trade, information, and real estate industries but receded slightly among manufacturers and retailers. Contacts in almost all sectors anticipated further increases in the months ahead--particularly those in wholesale trade and information.

More businesses than in recent months said they had raised selling prices--most notably in wholesale trade and leisure & hospitality. Retailers generally indicated that selling prices have been stable to up modestly. A sizable and rising proportion of contacts in wholesale trade and transportation said they planned to hike prices in the months ahead, while fewer leisure & hospitality firms said they would do so. A few contacts in manufacturing and distribution cited tariffs for driving up costs and inducing them to raise their prices.

Consumer Spending
Retail sales were mixed but, on balance, flat in September and early October. Non-auto retailers generally indicated that sales were flat or up modestly. One large retail chain noted that sales were running on plan and up slightly from year-earlier levels. New York City lagged the rest of the District slightly in the latest reporting period, partly reflecting weaker tourism. Retailers in upstate New York reported that sales picked up somewhat since the last report. Inventories were characterized as being at or a bit below optimal levels.

New vehicle sales weakened in September, according to dealers across upstate New York, and were down from a year earlier--partly attributed to reduced incentives. New vehicle inventories continued to run at or above desired levels. Sales of used vehicles have remained fairly elevated, though there were signs of slowing. Business at auto service departments has also slowed somewhat. Dealers continued to characterize retail and wholesale credit conditions as being in good shape.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) surged to a new cyclical high in September, based on the Conference Board's survey.

Manufacturing and Distribution
Manufacturers indicated that activity continued to expand briskly in recent weeks. Wholesalers reported a renewed pickup in growth in September, while transportation firms noted a pause in growth. Regarding the near-term business outlook, both wholesale distributors and manufacturers continued to express fairly widespread optimism, while transportation industry contacts have been more measured in their expectations. A number of contacts in these sectors expressed concern about tariffs.

Growth slowed noticeably in the latest reporting period. Contacts in professional & business services reported continued modest growth in activity, but businesses engaged in education & health services noted a pause in growth, while those in the leisure & hospitality and information industries noted a dip in activity. However, Broadway theaters reported continued growth in both attendance and revenues, both of which were running well ahead of comparable 2017 levels. Looking ahead, businesses in education & health services, professional & business services, and information industries continued to express optimism about the near-term outlook. Leisure & hospitality businesses said they expect business to be flat to up slightly.

Real Estate and Construction
Housing markets across the District have been mixed since the last report. In New York City, sales of existing co-ops and condos were down modestly, while sales of new units fell more sharply, albeit from elevated levels. In contrast, condo sales were said to be up noticeably in Westchester County. Single-family home sales were steady to down modestly in the suburbs around New York, including northern New Jersey. One contact ascribed some of this weakness to changes in federal tax law that limit deductibility of homeowner costs.

The inventory of homes on the market has risen throughout most of the District--particularly for smaller units in New York City. Still, current inventory levels remain quite low, particularly in upstate New York. Home price trends have been mixed, with values continuing to rise in upstate New York, Long Island, and northern New Jersey, but holding steady across New York City and its northern suburbs. Prices of new condos in New York City, as well as prices at the high end of the condo market more generally, have weakened noticeably.

The apartment rental market has been mixed. Manhattan's vacancy rate declined to its lowest level in a decade, reflecting a noticeable expansion in landlord concessions. Effective rents have trended down across New York City due to these increased concessions.

Commercial real estate markets have been mixed but mostly steady. Office availability rates edged up in New York City, Long Island, and across much of upstate New York, while rents were little changed. In northern New Jersey, however, availability rates edged down, while rents were flat. Retail markets weakened across most of the District, with rents drifting down in New York City, Fairfield County, and across much of upstate New York. In contrast, industrial markets have continued to strengthen, with rents up 5-8 percent from a year earlier and availability rates mostly steady or declining.

New multi-family construction has tapered off somewhat across the District but a substantial volume of residential space is currently under construction--particularly in New York City. New office construction remains subdued. New industrial construction has remained sluggish across upstate New York, but it has strengthened in the New York City area.

Banking and Finance
Small to medium-sized banks reported lower demand for consumer loans and residential mortgages, but steady demand for commercial mortgages and C&I loans. Banks reported tighter credit standards for commercial loans and mortgages but unchanged standards on household-sector loans. Loan spreads widened for residential and commercial mortgages. Finally, bankers reported a rise in delinquency rates for residential mortgages but unchanged rates for all other categories.

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