Beige Book Report: New York
May 27, 2020
Summary of Economic Activity
The Second District economy contracted substantially again in the latest reporting period, as widespread closures and stay-at-home orders severely constrained business activity. Employment continued to decline, and wages were mixed but down modestly, on balance. Businesses reported that input prices rose slightly but selling prices decreased slightly. Activity fell in every sector, with particularly widespread declines in leisure & hospitality. However, business contacts tended to be less pessimistic than in the prior report about the near-term outlook, and those in the manufacturing, construction, real estate, and health services sectors expected modest improvement. Consumer spending has fallen further, though there have been scattered reports of a nascent pickup in early May, as more parts of the economy have started to reopen. Tourism and travel have remained moribund, with hotels and airlines continuing to see very little business. Home sales and residential leasing activity have remained down sharply, as have commercial leasing and construction activity. Finally, banks reported further moderate weakening in loan demand, tighter credit standards, and higher delinquency rates but also greater leniency on existing loans.
Employment and Wages
The labor market has remained weak, as widespread layoffs have continued and hiring has been spotty. Two major employment agencies—one in New York City and another in upstate New York—noted that hiring was sluggish in April, though the latter noted a modest pickup in early May. A wide array of business contacts, as well as employment service firms, reported widespread layoffs and furloughs, especially at small to medium-sized businesses. However, the vast majority of these were viewed as temporary, with workers expected to be re-hired when business activity rebounds. Some businesses have already made efforts to recall laid off workers, as well as hire new workers. A number of these firms noted that this has been challenging, with many unemployed workers reluctant to return to work—some attributed this to generous unemployment benefits, as well as safety concerns.
Reports from across business sectors remained negative. Contacts in leisure & hospitality, transportation, retail, and construction reported the most widespread staff reductions, while businesses in manufacturing, information, finance, and professional & business services noted modestly declining staffing levels.
Looking ahead, contacts in both manufacturing and real estate said they expect a modest pickup in employment, while those in leisure & hospitality, retail, finance, and professional & business services projected steady staffing levels. Businesses across other sectors expected moderate staff cuts, on net, in the months ahead.
Wages have mostly been flat to lower since the last report. Businesses in the hard-hit leisure & hospitality sector continued to report widespread reductions in wages, whereas contacts in health services and finance indicated steady to modestly rising wages. Contacts in other service industries reported modest declines in wages.
Prices
Input costs were mixed but up modestly, on balance, with a number of contacts noting extra costs associated with installing and maintaining safety protocols. As in the last report, selling prices were steady to down modestly. Businesses in leisure & hospitality noted fairly widespread price cuts, while those in health & education services and wholesale trade characterized their selling prices as steady. Contacts in other sectors reported slight declines in the prices they receive.
Consumer Spending
Retailers reported further widespread drops in sales in April, with many malls and establishments still shut down, as those classified as non-essential were ordered to close in March. With New York and New Jersey easing restrictions in recent days, some retailers have been allowed to reopen with curbside pickup. Retailers have also sometimes been able to shift to online sales, though often with much-reduced volume. Food, personal care, and other stores deemed essential have tended to fare better. Retailers expected sales to be steady to down modestly in the months ahead.
Vehicle sales ground to a halt starting in mid-March, according to dealers in upstate New York, but picked up slightly into April, due to adoption of remote sales platforms. Dealers reported a further pickup in the first half of May, as restrictions on showroom visits were eased somewhat. While essential dealer repair services remained open, volume was much lower than usual.
Manufacturing and Distribution
Manufacturing, transportation, warehousing, and wholesale trade firms reported a further drop-off in business activity in recent weeks. However, there was substantial variation across segments, with those manufacturing and distributing essential goods faring much better than average. New York State and New Jersey are lifting restrictions on manufacturing before most other sectors.
Looking ahead, manufacturers expect activity to rebound, while wholesale and transportation firms foresee further weakening in activity. Businesses have continued to cut both actual and planned capital spending.
Services
Service industry contacts reported continued widespread deterioration in business activity. Leisure & hospitality contacts reported particularly widespread declines in activity, as restaurants remained shut down for dine-in service and hotels suffered from an almost complete drop-off in travel and tourism.
Contacts in professional & business services also indicated steep declines in activity, while businesses in the information, health, and education sectors all reported more moderate, but still fairly widespread, declines.
Looking ahead, business contacts continued to express great uncertainty about whether and when business would get back to reasonably normal levels, but there continued to be fairly widespread pessimism. A contact in air transportation expects any rebound in air travel to be slow and led by the leisure segment, noting a modest recent pickup in advance bookings for late 2020. A contact in New York City's tourism sector expects any rebound in visitations to be slow—particularly for international visitors, the most profitable segment—noting that Broadway theaters are closed until at least Labor Day.
Real Estate and Construction
Home sales markets across the District have largely ground to a halt, with almost no new transactions and home viewing limited to virtual showings. The residential rental market has slowed but not quite as dramatically. A local real estate authority noted that new rental leasing in New York City was down about 70 percent, while renewals were up, and that there has been a pickup in demand for single-family home rentals outside the city. A major appraiser noted that it's almost impossible to gauge changes in prices and rents during this pandemic due to a dearth of transaction activity.
Commercial real estate markets across the District also remain moribund, with April marking a record low in new leasing activity and some companies pulling out of leases. A contact at a major commercial real estate firm estimated that only about 10 percent of tenants in both office and industrial space have fallen behind on rent, thus far, but that the corresponding rate for retail tenants is well over 50 percent. Even beyond that, for some mall retailers, rent is assessed a share of sales revenue. More generally, real estate contacts were more optimistic than contacts in other sectors about the near term outlook.
New construction starts have essentially remained at zero, and ongoing construction projects remained paused, except where considered essential. However, this is likely to pick up as states ease restrictions on construction activity in the days ahead.
Banking and Finance
There was widespread interest, among businesses in all sectors, in the SBA Paycheck Protection Program loans, though some contacts expressed concerns about the program's implementation and accessibility. Separately, small to medium sized banks across the District reported lower loan demand across all categories, but most dramatically from the commercial segment. Banks reported tightening credit standards across all categories except consumer loans. Loan spreads narrowed on all categories except C&I loans. Respondents reported widespread declines in average deposit rates. Bankers reported higher delinquency rates but more lenient policies for delinquent accounts across all categories.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy