Beige Book Report: New York
April 15, 2020
Summary of Economic Activity
The Second District economy deteriorated sharply in the latest reporting period, amidst widespread shutdowns related to the coronavirus pandemic. The job market weakened substantially, and wages were flat to lower. Businesses reported that input prices leveled off and that selling prices were flat to down modestly. Activity fell sharply in nearly every sector, except wholesale trade, where activity was essentially flat. Business contacts in manufacturing and most service industries also expressed fairly widespread pessimism about the outlook. In general, there is great uncertainty and concern about the duration of the coronavirus pandemic and its economic effects. Consumer spending has fallen sharply, with a significant proportion of purchases going online. Tourism and travel ground to a halt, with many hotels closing, and those still open seeing sharp drops in occupancy rates. Home sales and rentals, commercial leasing, and construction activity have all largely stopped. Finally, financial sector contacts noted deteriorating conditions, and banks reported widespread weakening in loan demand, tighter credit standards, and higher delinquency rates but have been more lenient on existing loans.
Employment and Wages
The labor market has weakened sharply, as hiring largely stopped and layoffs were widespread. A major New York City employment agency, specializing in finance and professional services, noted that most activity has ground to a halt, but that they have not seen many layoffs other than temp workers. An upstate agency described it as business as usual for many essential businesses, while other businesses have eliminated their temporary staff and some have shut down. A major payroll firm noted that its business has remained steady but is expected to slip in the months ahead.
Reports from business sectors were mostly quite negative to varying degrees. Contacts in manufacturing, retail, and leisure & hospitality reported particularly widespread staff reductions, while businesses in the information, finance, wholesale, and professional & business services indicated steady to modestly declining staffing levels. Many contacts noted that these reductions were largely furloughs or temporary layoffs.
Looking ahead, contacts in manufacturing, finance, and professional & business services said they expect staffing levels to hold steady from current levels, but businesses across all other sectors expected further staff cuts, on net.
Wages have been flat to lower since the last report. Businesses in the hard-hit leisure & hospitality and retail trade sectors reported fairly widespread reductions in wages, while contacts in other service industries indicated that wages were generally flat to down slightly.
Prices
Firms generally reported that input costs were flat, while their selling prices were steady to down modestly. Businesses in construction & real estate, finance, information, and leisure & hospitality noted declines in their selling prices, while firms in other industries generally reported steady prices. Looking ahead, businesses in most sectors projected that their prices would be little changed in the months ahead. However, information and finance businesses anticipated lower selling prices, while those in education & health services said they expect to raise prices modestly.
Consumer Spending
Retailers reported widespread drops in sales in March, and the vast majority reported at least a partial temporary shutdown. However, most do not anticipate a full shutdown, with many shifting to mostly or completely online sales. Non-essential retail storefronts across the District were ordered to close in the latter part of March. Food and personal care stores tended to fare better but even these were seeing mixed results. Retailers expected sales to weaken further in the months ahead.
Vehicle sales dropped to near zero in the second half of March, according to auto dealers in upstate New York, as the state shut down non-essential businesses. Many of these dealers hope to at least partially re-open before the end of April. While essential dealer service departments remained open, business for these services also slowed considerably.
Manufacturing and Distribution
Manufacturers reported a widespread drop-off in business activity and new orders in recent weeks. Transportation firms also reported widespread declines, but wholesalers reported that activity was flat, on balance.
Looking ahead, manufacturers said they expect activity to be unchanged from current levels, on balance, while wholesalers and transportation firms anticipate weakening activity. Businesses generally have slashed capital spending plans, with potential implications for some durable goods producers.
Services
Service industry contacts reported weakening activity to varying degrees. Leisure & hospitality business fell particularly sharply, as tourism plummeted and restaurants shut down for dining-in service. Health service contacts noted a comparably widespread drop-off in activity and revenues. Businesses in education, professional & business services, and information reported more moderate, but still fairly widespread, declines in both activity and revenues. Contacts in all these sectors report that a majority of their staff is working from home—ranging from about half in leisure & hospitality to nearly everyone at information firms.
Stay-at-home directives have largely brought both leisure and business travel to a halt. An expert on New York City's tourism sector noted that almost nobody is visiting the city, and that New York City's hotel occupancy fell from roughly 72 percent to 15 percent by the end of March. Many hotels have closed temporarily, while others have repurposed some rooms as excess hospital space, and some as isolated office space.
Looking ahead, business contacts expressed great uncertainty, though there was fairly widespread pessimism. Those in leisure & hospitality expressed the bleakest expectations, while those in professional & business services tended to be the least pessimistic.
Real Estate and Construction
Home sales and rental markets across the District have largely paused, and many residential rental and sales listings have been removed, reflecting stay-at-home directives. Real estate agents were reclassified as essential in early April, though traffic has been weak and largely limited to virtual showings.
A major appraiser noted that selling prices of New York City co-ops and condos were continuing to decline through mid-March, especially at the high end. Given the lack of activity since, though, it is difficult to gauge more recent changes in prices and rents. Landlords are reportedly concerned about how many tenants are going to be delinquent on their April rent—particularly in New York City, where a majority of residents are renters.
Commercial real estate markets across the District have also ground to a halt, with office, industrial, and retail leasing activity largely ceasing. Office availability rates and rents have not changed noticeably thus far, but real estate contacts have noted concern about collecting rent from commercial tenants.
New construction starts have essentially fallen to zero, and ongoing construction projects have paused, except where considered essential.
Banking and Finance
Financial service businesses have noted widespread declines in activity and revenues. Though only moderately pessimistic about the near-term outlook, finance sector contacts expressed widespread concern about maintaining adequate cash flow and collecting payables from customers. A majority of small- to medium-sized banks across the District reported lower loan demand across all categories. Bankers also reported tighter credit standards and narrowing loan spreads across the board. Higher delinquency rates were reported across all categories—particularly commercial & industrial loans. Bankers were also asked, in light of the coronavirus pandemic, if they had adopted more lenient policies on loan repayments. The vast majority said they had done so on residential mortgages, compared with about half on commercial & industrial loans, and a somewhat over half on commercial mortgages.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy