March 4, 2020
Summary of Economic Activity
The Second District economy picked up to a moderate pace of growth in the latest reporting period. The labor market remained tight, and wage growth picked up somewhat, though hiring activity was sluggish. Businesses report that both input prices and selling prices picked up somewhat and rose at a moderate rate. Manufacturing activity picked up noticeably, while most service industries reported some pickup. Consumer spending has remained sluggish, following a mixed holiday season, while auto dealers reported a fairly good start to the year. Tourism has weakened more than the seasonal norm in early 2020. Home sales markets have picked up somewhat so far this year, and the residential rental market has remained tight. Commercial real estate markets have weakened further. New commercial construction has largely dried up, while new multi-family residential construction has been steady at a moderate pace. Banks reported some pickup in loan demand and little change in delinquency rates, while financial sector contacts more broadly noted flat to slightly declining activity. Finally, business contacts in most sectors have grown a bit more sanguine about the near-term outlook.
Employment and Wages
The labor market has remained stable and tight across the District, while hiring has been restrained. Employment agencies have noted ongoing trouble finding workers in occupations ranging from IT workers to customer service reps. A major payroll firm noted that job growth at small businesses has slowed across New York State. Reports from business sectors were mixed. Retail, finance, and transportation firms reported declining employment, on balance, but contacts in manufacturing, wholesale trade, professional & business services, and information reported modest net hiring.
Looking ahead, businesses in almost all major industry sectors indicated that they planned to add staff, on net. The one sector anticipating job reductions was retail trade. Businesses in most service sectors, as well as employment agencies, reported that wage growth has picked up a bit. Only in finance did contacts report flat wages. A number of businesses in both the manufacturing and service sectors noted that the latest rise in New York’s minimum wage has had ripple effects, boosting wages even for workers well above the minimum.
Prices
Businesses mostly reported that both input costs and selling prices picked up somewhat, rising at a moderate pace. In terms of prices paid, much of this pickup was reported in manufacturing, transportation, information and retail trade. In terms of prices received, the most widespread acceleration was reported from contacts in transportation, information, and leisure & hospitality. Broadway theater ticket prices have receded slightly in early 2020 and were little changed from a year ago. Looking ahead, businesses in all sectors except finance plan to raise their selling prices, on net, in the months ahead.
Consumer Spending
Retailers reported that sales were mostly flat thus far in 2020, and contacts generally expected lackluster sales for the months ahead. Some upstate New York retailers offered a more favorable assessment, characterizing customer traffic and sales as solid, helped by mild weather. Retailers generally indicated that inventories were in fairly good shape, aside from an overhang of cold-weather outerwear.
Sales of both new and used vehicles have remained fairly strong in early 2020, helped by mild winter weather. Consumer confidence in the Middle Atlantic States (NY, NJ, PA) rebounded in early 2020, after falling to a nearly two-year low in December.
Manufacturing and Distribution
Manufacturers reported a fairly brisk pickup in business activity and especially in new orders. On the distribution side, reports were also fairly positive: wholesalers reported continuing moderate growth in activity, while transportation contacts noted a rebound in business.
Looking ahead, manufacturers indicated that they project moderate growth in the months ahead, while wholesalers and transportation firms foresee more subdued growth. Contacts in these sectors have expressed concern about the latest round of minimum wage hikes, and there has been ongoing concern about tariffs. One manufacturing contact noted problems with supply disruptions and shipment delays related to the coronavirus.
Services
Service industry contacts generally noted a pickup in activity following flat business in late 2019. However, contacts in the education & health service sector indicated that activity was flat. Tourism activity was mixed. A few contacts reported that the coronavirus has deterred visitors, though New York City hotels have continued to report good business. Broadway theaters reported that business slowed by more than the seasonal norm, following a brisk December. Both attendance and revenues fell well below comparable year-ago levels.
Looking ahead to the first half of 2020, contacts in most major service industries were fairly upbeat, though businesses in education & health were more guarded in their optimism.
Real Estate and Construction
Home sales markets across the District have been mixed but, on balance, a bit firmer since the last report. Prices of New York City condos and co-ops leveled off but remained below a year ago. In particular, a sizable inventory glut at the high end of the market, most notably for new development, has continued to depress prices. However, prices at the lower to middle segments of the market have been steady to up modestly. Suburban markets, in both downstate and upstate New York, have been more robust, with low inventories boosting prices. Sales activity has picked up somewhat across the District.
New York City’s residential rental market has been mixed: Manhattan’s market has continued to strengthen—especially at the higher end, as apartment-seekers have shied away from the sales market. In the outer boroughs, however, excess inventories of new rental developments have held back rents. Overall, rents have risen at a roughly 2-3 percent pace, while concessions have receded, except at the high end. An industry contact noted concern among real estate professionals about recent efforts to ban charging fees to new renters.
Commercial real estate markets across the District have softened further. Office availability rates have climbed modestly across most of New York State, while they have been steady in northern New Jersey, Fairfield County, CT, and the Lower Hudson Valley. Office rents have held steady, on balance, across the District. Industrial markets have been mixed, with both rents and vacancy rates on the rise. The market for retail space has continued to soften, though asking rents have remained somewhat elevated, especially in New York City.
New multi-family construction starts have remained fairly robust across the District, and ongoing multi-family construction activity has remained brisk. By contrast, new office construction has weakened, while industrial construction has been mixed, picking up in upstate New York but remaining flat or falling elsewhere.
Banking and Finance
Financial sector contacts reported flat to weaker activity, and expressed ongoing concern about the business outlook. Small to medium-sized banks in the District reported lower demand for consumer loans but higher demand for residential mortgages, including refinancing, as well as commercial loans and mortgages. Bankers reported unchanged credit standards for all loan categories, narrowing spreads on residential mortgages and commercial mortgages, and widespread decreases in the average deposit rate. Finally, bankers reported little change in delinquency rates across the board.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy