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New York: January 2020

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Beige Book Report: New York

January 15, 2020

Summary of Economic Activity
The Second District economy grew at a modest pace in the latest reporting period. The labor market remained tight, though hiring activity was subdued and wages grew modestly. Businesses reported that both input prices and selling prices have continued to rise modestly. Manufacturing activity picked up slightly, while most service industries reported little change in business activity. Business contacts in most sectors were cautiously optimistic about the near-term outlook. Consumer spending was mixed, with retailers giving mixed reports on holiday-season sales, but auto dealers noting a fairly vibrant end to the year. Housing markets have been mixed but, on balance, steady, while the residential rental market has remained on a positive trend. Commercial real estate markets have weakened further. New commercial construction has remained sluggish, while multi-family residential construction has picked up. Finally, banks reported some pickup in loan demand and little change in delinquency rates, while financial sector contacts more generally reported weakening activity.

Employment and Wages
The labor market has remained tight across the District, while hiring has been restrained. Employment agencies have noted ongoing trouble finding workers in a wide variety of occupations, such as creative IT workers, financial controllers, project managers, paralegals, and delivery truck drivers.

Businesses in most sectors continued to report flat employment. Contacts in manufacturing, education & health, and leisure & hospitality reported modest net hiring; in contrast, contacts in the transportation and finance sectors noted some declines in staffing levels. Retailers noted that seasonal hiring was about the same as a year earlier, though some contacts said they had trouble finding enough seasonal help. Businesses in most sectors reported that wage growth has been modest and little changed, though contacts in finance reported flat wages overall.

Looking ahead, businesses in manufacturing and most service sectors still planned on adding to staff; however, businesses in the finance and transportation sectors projected flat employment, and retailers reported plans to reduce staff, on net.

Businesses in most sectors reported that both input costs and selling prices have continued to rise at a modest pace. However, contacts in education & health and wholesale & retail trade have noted fairly widespread escalation in the prices they pay. In terms of selling prices, the largest price hikes were reported by retailers, wholesalers, and transportation firms. Education & health providers also noted a leveling off in the prices they charge. Broadway theater ticket prices moved up during the busy holiday season and were up slightly from a year ago.

Looking ahead, businesses in all sectors plan to raise their selling prices in 2020. The most widespread hikes were anticipated in transportation, retail trade, professional & business services, and real estate, while the least widespread were in finance, education & health, and leisure & hospitality.

Consumer Spending
Retailers reported mixed results for the holiday season, with overall sales mostly flat and on plan, while contacts were mildly pessimistic, on balance, about the outlook for 2020. A major retail chain reported that same-store sales were down slightly from last year but roughly on plan. Upstate New York retailers were somewhat more upbeat, noting fairly solid shopper traffic and satisfactory sales volume, amidst heavy discounting. A growing proportion of holiday shopping was done online, as in-store sales lagged. Most retailers indicated that inventories were in fairly good shape.

Sales of both new and used vehicles have strengthened further, helped by manufacturer incentives, heavy promotion, and solid credit conditions, according to dealers in upstate New York. Consumer confidence in the Middle Atlantic States (NY, NJ, PA) fell to a nearly two-year low in December, though it remained fairly elevated.

Manufacturing and Distribution
Manufacturers reported that business activity has picked up modestly. On the distribution side, reports were more mixed: wholesalers reported continuing moderate growth in activity, while transportation contacts noted a modest downturn in business.

Looking ahead, manufacturers and wholesalers indicated that they project modest growth in the months ahead, on balance, whereas transportation businesses anticipate flat activity. Some contacts in these sectors have continued to express concern about tariffs and trade uncertainty, as well as minimum wage hikes.

Businesses in most service industries indicated that activity was essentially flat, on balance, since the last report. As in the prior report, one notable exception was the leisure & hospitality sector, where contacts continued to note moderate growth in activity. Broadway theaters reported a typical seasonal pickup in business in December, though both attendance and revenues were down modestly from comparable year-ago levels.

Looking ahead to the first half of 2020, however, contacts in all the major service industries expressed optimism—particularly in the information and professional & business service sectors.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, steady since the last report. Prices of New York City condos and co-ops continued to weaken and were down modestly from a year earlier. The steepest declines have continued to be at the high end of the market. The inventory of existing homes has risen further, reaching a fairly high level in Manhattan and moderate levels in Brooklyn and Queens. In contrast, housing markets in the suburban areas around New York have shown signs of strengthening, with sales activity holding up fairly well, prices rising moderately, and inventories generally stable. Similarly, the sales market in upstate New York has remained solid, with inventories steady at very low levels, prices running moderately ahead of a year earlier, and homes selling fairly quickly.

The residential rental market has remained on a positive trend. Rent growth has slowed in New York City's outer boroughs, as many newly developed properties have come on line. In Manhattan, rents have risen modestly, mainly at the high end. A local real estate expert attributed this to a shift from purchasing to renting, as well as a decline in investor interest. Rental vacancy rates remain quite low across New York City, though the shadow inventory is reported to be somewhat higher. Landlord concessions remain fairly sizable on new apartments.

Commercial real estate markets across the District have continued to soften. Office availability rates have climbed modestly throughout New York State, while they have been steady in northern New Jersey. Office rents have remained essentially flat across the District. Industrial markets have been mixed: rents have continued to trend up, though at a decelerating pace, while availability rates have edged up. The market for retail space has continued to soften, with asking rents drifting down and vacancy rates rising to multi-year highs.

New multi-family construction starts have picked up across the District, while ongoing multi-family construction activity has remained brisk. New office and industrial construction has continued to weaken modestly.

Banking and Finance
Financial sector contacts generally noted further weakening in activity and expressed ongoing concern about a deteriorating business climate. Small to medium-sized banks across the District reported increased demand for all categories of loans, except commercial and industrial. Refinancing activity was little changed. Banks reported narrowing spreads, unchanged credit standards, and stable delinquency rates across all major loan categories.

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