Beige Book Report: New York
April 17, 2019
Summary of Economic Activity
Economic activity in the Second District expanded slightly since the last report. The labor market has remained exceptionally tight, while wage growth has been steady. The pace of both input price increases and selling price increases slowed considerably. Manufacturing and distribution activity expanded, while business was generally steady in the service sector. Consumer spending has been somewhat weaker, on balance, and tourism has tapered off a bit. Housing markets were mixed, with sales markets steady to softer but rental markets strengthening. Commercial real estate markets have been steady to slightly firmer. Finally, banks reported steady to somewhat stronger loan demand and no change in delinquency rates.
Employment and Wages
The labor market has remained exceptionally tight across the District, with employers reporting ongoing difficulties finding workers of all skill levels. Businesses continued to report that employment was flat to up slightly, on balance, so far this year. Firms in wholesale, real estate & construction, and transportation noted modest net gains in staffing levels, while contacts in the retail and leisure & hospitality sectors noted modest declines. New York City employment agencies reported strong hiring from nonprofits, legal, consulting, and accounting firms, as well as small to medium-sized finance companies.
With tight labor markets, wage growth has been steady in recent months. One major employment agency in New York City noted that salaries have not risen as much as one would expect given the tightness of the labor market. Two employment agency contacts noted a large and widening gap between salary demands and salary offers, noting that this has led some employers to miss out on good candidates. Manufacturers, in particular, were said to be holding the line on wages, while service firms have become somewhat more flexible.
Prices
Businesses reported that both input price increases and selling price increases slowed considerably in the latest reporting period. Input cost pressures tended to be most widespread in the wholesale & retail trade, education & health, and business & professional services sectors. Contacts across most industry sectors reported steady to modestly rising selling prices, with the most widespread rises reported in the wholesale trade and real estate & construction sectors.
Retailers generally indicated that selling prices have been essentially flat. One major chain reports somewhat steeper discounting to clear out excess inventories, but another contact notes less seasonal discounting than in years past. Nightly rates for New York City hotel rooms and prices for Broadway theatre admissions have slipped in recent weeks and were down roughly 10 percent from a year earlier.
Consumer Spending
Retail sales picked up modestly in March. A major retail chain noted that sales in the region were up slightly from a year ago in March and above plan, led by New York City stores. With the change in seasons, retailers in upstate New York generally reported fairly solid shopper traffic and ongoing modest growth in sales activity. Inventories were generally said to be at or modestly above desired levels.
New vehicle sales remained quite weak through March, according to dealers in upstate New York, falling well below year-ago levels. With this slowdown, new vehicle inventories have grown above desired levels. Sales of used vehicles were said to be steady to down slightly in recent months. Dealers indicated that consumer credit has remained widely available.
Consumer confidence in the Middle Atlantic states (NY, NJ, PA), which had been at or near record levels for most of the past year, fell to a 14-month low in March, based on the Conference Board’s monthly survey.
Manufacturing and Distribution
The manufacturing and distribution sectors continued to expand in the latest reporting period. Manufacturers reported slight increases in activity in recent months, while wholesale distributors and transportation firms continued to report fairly brisk growth.
Looking ahead, contacts in the manufacturing and distribution sectors have become less optimistic about future business conditions. A number of contacts continued to express concern about trade uncertainty, tariffs, and the recent increase in New York State’s minimum wage.
Services
Overall, service-sector business was characterized as flat in the latest reporting period. Contacts in the business & professional services sectors reported some deceleration in activity, while information-related businesses noted a slight decline in activity.
Leisure & hospitality businesses reported little or no growth in recent months. Tourism to New York City has softened noticeably, particularly in the last couple of weeks. Hotel occupancy rates and revenues weakened in the latter part of March, slipping well below comparable 2018 levels. Likewise, Broadway theaters reported that attendance and especially revenues became progressively weaker during March, slipping below year-ago levels. Part of this apparent softening may be attributable to unseasonably cold weather and a later Easter.
Real Estate and Construction
Housing markets across the District have been mixed since the last report, with home sales and prices flat, on balance, but rental markets strengthening. Homes sales in upstate New York have picked up seasonally, and persistently low inventories of unsold homes have continued to boost prices. In New York City, in contrast, the inventory of unsold homes climbed further in the first quarter, prices were flat to down slightly, and the volume of transactions fell to its lowest level in a decade. The market for newly-constructed condos has been particularly weak. There has been some concern about the federal tax changes, which greatly limit the tax-deductibility of homeowner expenses, and also about a hike in New York State’s transfer tax on high-end properties.
Residential rents across the District have risen modestly since the last report and are up from a year earlier. In New York City, rents have resumed a modest upward trend as rental vacancy rates have declined from already low levels and landlord concessions, though still prevalent, have receded gradually.
Commercial real estate markets have been steady to slightly firmer in the latest reporting period. Office availability rates and asking rents have been steady overall. The market for retail space has been mixed, with rents edging down across the New York City area but rising modestly across most of upstate New York. Retail vacancy rates have been mostly flat. Industrial markets, on the other hand, have continued to strengthen: rents have continued to climb at a moderate rate, while availability rates have held steady at fairly low levels.
New multi-family construction starts remained sluggish, but there continues to be a sizable volume of residential space under construction in and around New York City. In New York City, office construction has picked up, and there continues to be a high volume of office development in progress, with a large amount of space scheduled to come on-line over the remainder of 2019.
Banking and Finance
Small to medium-sized banks in the District reported somewhat higher demand for consumer loans and residential mortgages, but no change in demand for commercial and industrial (C&I) loans or commercial mortgages. Refinancing activity remained little changed. Bankers noted higher credit standards for commercial mortgages and C&I loans, and no change in standards for other types of loans. Lower loan spreads were reported for consumer loans and residential mortgages, while spreads were steady for all other categories. The average deposit rate was reported to be up fairly sharply. Finally, banks reported that delinquency rates held steady across all loan categories.
For more information about District economic conditions visit: www.newyorkfed.org/data-and-statistics/regional-data-center/index.html