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New York: June 2019

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Beige Book Report: New York

June 5, 2019

Summary of Economic Activity
Economic growth in the Second District picked up to a moderate pace in the latest reporting period. The labor market has remained very tight, while wage growth has been largely subdued. Both input prices and selling prices have continued to increase at a modest pace. Manufacturing activity grew at an increasingly brisk pace, as did activity in some service sectors; however, growth in the distribution industries slowed somewhat. Consumer spending and tourism expanded modestly. Housing markets firmed somewhat, as the rental market continued to improve and the sales market picked up modestly. Commercial real estate markets have also firmed slightly, on balance, and new office construction has expanded noticeably. Finally, banks reported a broad-based increase in loan demand.

Employment and Wages
The labor market has remained very tight across the District, as employment agencies report persistent difficulties finding workers—particularly those with IT skills. Businesses continued to characterize employment as flat to up slightly. Firms in wholesale trade, transportation, real estate & construction, and leisure & hospitality reported increased staffing levels. In contrast, businesses contacts in the retail trade, professional & business services, information, and leisure & hospitality sectors noted little change in employment. A New York City employment agency reported particularly brisk demand for human resource workers.

Despite persistently tight labor markets, wage growth has been fairly subdued, though highly skilled workers have seen larger hikes. Large IT firms have reportedly been luring top employees from smaller tech firms by offering generous benefits and salary hikes. A number of businesses in New York State have noted ongoing challenges from the recent minimum wage increase; some reported that they are investing more in automation.

Businesses reported that both input prices and selling prices rose at about the same modest pace as in the last report. Input cost pressures tended to be most widespread in the wholesale & retail trade, transportation, and education & health sectors. The most widespread rises in selling prices were reported from the leisure & hospitality, wholesale & retail trade, and real estate & construction sectors.

Retailers generally indicated that selling prices have been flat. One major chain reports that it has raised prices on some merchandise (such as furniture and leather goods) in order to pass along cost increases due to tariffs. Prices for Broadway theatre admissions edged up in April but declined in May, running 8-9 percent lower than a year earlier.

Consumer Spending
Retail sales have remained essentially flat in the latest reporting period. A major retail chain noted that sales in the region were slightly below plan and little changed from a year earlier, with a decline in store sales offset by growth in digital sales. Retailers in upstate New York indicated modest growth in retail sales, with shopper traffic buoyed by unseasonably cold and wet weather. Inventories were generally said to be at or around desired levels, though some overhang was reported for warm-weather merchandise.

New vehicle sales rebounded modestly from sluggish levels and were roughly on par with comparable 2018 levels, according to dealers in upstate New York. New vehicle inventories remained elevated. Sales of used vehicles were reported to be steady to somewhat stronger in recent weeks. Dealers indicated that consumer credit has remained widely available, though the cost of holding inventory has increased as floor plan rates have moved up.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) fell in both March and April, reaching its lowest level in more than a year, based on the Conference Board's monthly survey.

Manufacturing and Distribution
The manufacturing and distribution sectors have been mixed. Manufacturers reported a significant pickup in activity in recent weeks, while transportation firms noted a pause in activity. Wholesale distributors reported steady, moderate growth.

Looking ahead, wholesale distributors have remained fairly optimistic, and contacts in the manufacturing and transportation industries expressed renewed optimism about the near-term outlook. Some businesses expressed ongoing concern about trade uncertainty, tariffs, and the increase in New York State's minimum wage.

Service-sector businesses overall reported some improvement in the latest reporting period. Contacts in the information and finance sectors noted a pickup in activity, while those in business & professional services reported steady, moderate growth. However, contacts in the education & health service sector indicated that activity was flat.

Leisure & hospitality firms reported a pickup in business in April and early May. Broadway theaters reported that attendance has been steady to somewhat higher in recent weeks, running modestly above a year earlier. However, revenues weakened in the first half of May, running more than 5 percent below comparable 2018 levels.

Real Estate and Construction
Housing markets across the District have picked up somewhat since the last report. Homes sales in upstate New York have picked up further, and low inventories of unsold homes have continued to boost prices. In New York City, the inventory of unsold homes has continued to climb, though prices appear to have stabilized. The volume of transactions remains subdued and down noticeably from a year earlier. There continues to be concern about the federal tax changes, which diminish the tax-deductibility of homeowner expenses, and thus some of the tax advantage of owning versus renting.

Residential rents across the District have continued to rise since the last report and are up from a year earlier. In New York City, rents have continued to rise at a modest pace, as rental vacancy rates remain exceptionally low. Landlord concessions, though still somewhat prevalent, have receded further.

Commercial real estate markets have firmed slightly since the last report. Office availability rates have edged up in New York City and Long Island but have fallen noticeably across the rest of the District. Asking rents have been steady across downstate New York but have risen modestly in upstate New York and northern New Jersey. The market for retail space has remained soft, particularly in and around New York City. Industrial markets, in contrast, have remained fairly robust across most of the District.

New multi-family construction starts have been subdued, though a sizable volume of residential construction has remained in progress in and around New York City. However, there has been a significant pickup in new office construction in New York City, as well as its northern suburbs, and there has continued to be a good deal of office construction in progress throughout the metro area, including northern New Jersey.

Banking and Finance
Small to medium sized banks across the District reported widespread increases in loan demand across all categories. Bankers reported no change in refinancing activity. Credit standards were reported to be lower for consumer loans but unchanged for all other categories. Banks reported unchanged loan spreads across all categories and widespread increases in the average deposit rate. Finally, reports on delinquency rates were mixed, declining for consumer loans but rising on commercial mortgages.

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