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New York: July 2019

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Beige Book Report: New York

July 17, 2019

Summary of Economic Activity
Growth in the Second District economy slowed to a modest pace in the latest reporting period. The labor market remained very tight, though job growth was tepid, and wage growth largely remained subdued. Input price pressures have moderated slightly, and selling prices have decelerated noticeably. Manufacturing activity declined, while growth in the trade and distribution industries slowed considerably. However, most service sectors saw steady to modestly growing activity. Consumer spending has edged up, mainly due to some firming in auto sales, while tourism has been mostly steady. Housing markets have been mixed but, on balance, a bit firmer—particularly the rental market. Commercial real estate markets have held steady overall, and new office construction has continued to pick up. Finally, banks reported a pullback in loan demand across the board, and the financial sector more generally showed signs of softening.

Employment and Wages 
The labor market has remained very tight throughout the District. Contacts reported persistent difficulties finding workers across the spectrum—in particular, those with IT skills, truck drivers, and construction workers. An employment agency indicated that demand for temporary workers has diminished, as firms are increasingly inclined to hire permanent workers. A payroll service firm noted that job growth slowed in June, but largely because employers have had more trouble filling job openings. A number of contacts noted difficulties in securing and renewing H1B visas for specialized workers, and cited uncertainty about this as a problem.

Businesses generally reported slowing in hiring activity. Contacts in the manufacturing, transportation, and information sectors reported that, on balance, headcounts have declined, while professional & business service firms indicate little change. Contacts in other service sectors, as well as construction and real estate, reported continued modest growth in employment. Still, contacts in both manufacturing and in most service sectors plan to increase staffing levels in the months ahead.

Despite persistently tight labor markets, businesses and employment agencies generally report continued modest wage growth. Exceptions to this include certain high-skill occupations, such as IT workers and engineers, as well workers in the education & health sector more broadly.

Businesses reported that input prices and especially selling prices have decelerated in recent weeks. Input cost pressures have abated somewhat in the manufacturing, finance, professional & business services, and leisure & hospitality sectors but have remained fairly widespread in other industries. Selling prices are reported to have leveled off for businesses in manufacturing, information, finance, and leisure & hospitality. Prices for Broadway theater admissions were down roughly 10 percent from a year earlier.

Retailers generally indicated that selling prices have been flat to down slightly. Retail contacts noted that they have been discounting more steeply in recent months, with one major chain noting declines in effective selling prices compared with a year ago.

Consumer Spending
Overall, retail sales were essentially flat in the latest reporting period. Somewhat more retail contacts reported that business was declining than increasing. However, an upstate New York mall reported solid shopper traffic and modestly growing sales activity, despite a number of store closures. In addition, a major retail chain noted that sales in the region were roughly on plan and up modestly from a year earlier. Inventories were generally indicated to be at or slightly above desired levels.

New vehicle sales grew modestly, while sales of used autos were steady to somewhat weaker, according to dealers in upstate New York. New vehicle inventories remained elevated. Dealers indicated that consumer credit conditions generally have remained in good shape.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) retreated in June, after rising in May, though it remains at a fairly high level, based on the Conference Board's monthly survey.

Manufacturing and Distribution
The manufacturing and distribution sectors have weakened since the last report. Manufacturers reported that overall activity and new orders have contracted modestly in recent weeks. Wholesale distributors reported that growth slowed sharply, and transportation firms noted that activity was flat to rising modestly.

Looking ahead, manufacturing contacts remain fairly positive about the near-term outlook, while wholesale distributors and transportation firms have become somewhat less optimistic. Businesses have continued to express concern about tariffs, trade uncertainty, and the increase in New York State's minimum wage.

Service-sector businesses reported that activity was mixed but, on balance, little changed in the latest reporting period. Contacts in real estate, information and leisure & hospitality noted increased business, while contacts in finance reported declining activity. Businesses in education & health and professional & business services indicated flat activity.

Broadway theaters reported that attendance was steady in June and little changed from a year ago. However, revenues have continued to weaken, running roughly 10 percent below comparable 2018 levels.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, slightly firmer since the last report. Home purchase markets in upstate New York have strengthened further, and low inventories of unsold homes have continued to boost prices, with more homes selling for above asking price. In New York City, in contrast, the inventory of unsold homes has climbed to a 7-year high, though not to levels considered problematic. Apartment sales prices have been flat overall. There was a brisk pickup in transactions in the second quarter—largely at the high end of the market—in advance of a "mansion tax" effective July 1, but this is expected to sharply curtail activity in the third quarter. Housing markets in the areas surrounding New York City have picked up modestly.

Residential rents across the District have continued to rise modestly in recent weeks and are up from a year earlier. In New York City, rental vacancy rates remain exceptionally low, and landlord concessions have continued to recede from the high levels of the past two years.

Commercial real estate markets have been generally stable since the last report. Office availability rates and rents across most of the District have been steady and little changed from a year ago, though some markets across upstate New York have firmed modestly. Industrial markets have been mixed, as rents have continued to rise moderately but availability rates have drifted up somewhat.

New multi-family construction starts have been steady, while a sizable volume of residential construction has remained in progress in and around New York City. New office construction has picked up further—largely in New York City—while new industrial construction has tapered off somewhat.

Banking and Finance
Small to medium-sized banks in the Second District reported lower demand across all categories, as well as lower refinancing activity. Bankers indicated that credit standards were unchanged and loan spreads narrowed across all categories. Contacts also reported an increase in the average deposit rate. Finally, banks noted slightly higher delinquency rates on commercial mortgages but little change in delinquencies across other loan categories.

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