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New York: July 2020

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Beige Book Report: New York

July 15, 2020

Summary of Economic Activity
The Second District economy rebounded moderately in the latest reporting period, following a steep contraction, as the spread of the virus subsided and businesses began to reopen. Employment came off its lows across most industry sectors, while wages were steady, on balance. Input prices rose modestly, but selling prices were flat to down slightly overall. Activity showed signs of rebounding in most industry sectors, with the strongest bounce-backs seen in retail, wholesale trade, and manufacturing. Leisure & hospitality businesses also reported some improvement. Business contacts have grown considerably more optimistic about the near-term outlook, though many businesses expressed concern about PPP loans running out or not being forgiven. Consumer spending has been mixed, but, on balance, has rebounded substantially—especially for vehicles. In contrast, tourism and travel have remained depressed. Home sales and residential leasing activity have been sluggish, though some areas have seen a nascent pickup in June, as restrictions were eased. Commercial leasing and construction activity remained weak. Finally, banks reported increased demand for mortgages, mostly tighter credit standards, steady delinquency rates, and ongoing widespread leniency on existing loans.

Employment and Wages
The labor market has improved slightly, as businesses have begun to recall workers and some have added new workers. Most pandemic-related layoffs are still considered to be temporary, though one employment agency in upstate New York noted that some previously furloughed workers have more recently been laid off permanently. That agency along with another in New York City noted that hiring has remained sluggish. A number of contacts at firms providing various business and office services have reduced staffing levels, hours, and salaries. On balance, though, business contacts indicate that their staffing levels have rebounded at least moderately from the lows seen during the spring.

Some businesses have noted ongoing challenges in both bringing back furloughed workers and hiring new ones. Among the factors deterring workers are child care needs, safety concerns, and the generosity of unemployment benefits under the CARES Act.

Looking ahead, business contacts in most industries plan to increase staffing levels, on balance, in the months ahead. However, the information and professional & business service sectors, which had relatively mild layoffs, did not plan to expand staff overall.

Wages have generally been steady in recent weeks. One employment agency noted that wages have risen for lower-paid workers, whereas many businesses have cut salaries for managers and other highly-paid workers. Looking ahead, businesses generally expect wages to rise, on balance, though not in the business services, information, or leisure & hospitality sectors.

Business contacts reported that input costs were up modestly, on balance, while selling prices were flat to down slightly. A sizable number noted mostly modest costs related to installing and maintaining safety protocols. The most widespread cost pressures were reported by education & health and leisure & hospitality firms. Trends in selling prices varied widely across sectors. Contacts in professional & business services, leisure & hospitality, and financial services noted fairly widespread price cuts, while those in other sectors noted stable selling prices. Notably, retail and leisure & hospitality firms generally expected to raise prices in the months ahead.

Consumer Spending
Retailers reported that sales remained soft in May but many noted a pickup in June, as restrictions on non-essential stores began to ease. While shifts to online sales and curbside pickup have boosted business, overall sales have remained well below pre-pandemic levels. One upstate New York mall noted that many of its stores have remained closed due to tighter restrictions on stores without exterior entrances. Retailers expected sales to continue to improve gradually in the months ahead.

Vehicle sales have rebounded fairly sharply in May and June, according to dealers in upstate New York, though they remained somewhat below comparable 2019 levels. Contacts expressed concern that lean inventories of both new and used vehicles may constrain sales through the summer.

Manufacturing and Distribution
Manufacturing and wholesale trade activity have picked up modestly, while transportation & warehousing business has remained weak. New York State and New Jersey lifted restrictions on manufacturing and distribution businesses earlier than for most other sectors.

Looking ahead, manufacturers and wholesalers expressed increased optimism, while transportation & warehousing contacts were modestly optimistic. Capital spending plans of manufacturers have picked up a bit, but service firms have scaled back plans substantially.

Service industry contacts reported some pickup in business but noted that activity has remained well below pre-pandemic levels. Contacts in leisure & hospitality and transportation—the hardest hit sectors during the pandemic—have noted scattered signs of improvement, though safety concerns have inhibited demand. Moreover, capacity and other restrictions on restaurants and retail consumer services have limited capacity. Tourism has remained moribund, with hotels and airlines continuing to see business at well under half of capacity.

Health and education service providers report ongoing weakness in business and were not generally optimistic about the near-term outlook. Activity has also remained depressed in the information and professional & business services sectors, as many business customers have cut back on such services. There is widespread concern about when such business will rebound.

Real Estate and Construction
Home sales markets across the District have been mixed, with New York City's sales and rental markets sluggish but some markets in less urban areas and in upstate New York showing strength. In New York City, closings were down more than 50 percent from a year earlier, while new contract signings were down roughly 75 percent. However, a local real estate authority noted a nascent surge in activity in late June—as restrictions were lifted—and expected Q3 to be quite active due to pent up demand and increased supply. The City's residential rental market has weakened due to a combination of very little new leasing and a number of tenants not renewing. Both prices and rents appear to be down from pre-pandemic levels, though there is some uncertainty due to low volume.

In other parts of the District, however, there have been signs of strengthening housing demand—particularly in the market for second homes. Activity across much of New York State picked up substantially when restrictions were lifted in early June, and demand appears to have exceeded supply driving higher prices and bidding wars across parts of the region.

Commercial real estate markets across the District remain weak, with availability rates rising, rents flat or declining, and leasing activity very sluggish. Many retail tenants have continued to fall behind on rent—particularly in malls, where restrictions have stayed in place. Still, real estate contacts remained somewhat optimistic, on balance, about the near term outlook.

New construction activity has remained quite sluggish, though many ongoing construction projects have begun to start up again, as restrictions have been eased.

Banking and Finance
Contacts in the finance sector generally noted continued weak business but have grown somewhat more optimistic in their expectations for the months ahead. Small to medium-sized banks in the District reported higher demand for residential and commercial mortgages, lower demand for commercial & industrial loans, and unchanged demand for consumer loans. Refinancing activity has also increased. Bankers reported easing credit standards on consumer loans, but widespread tightening in credit standards across other categories. Spreads reportedly narrowed on all loan categories except commercial mortgages. Delinquency rates generally remained stable, and lenders reported more lenient policies for delinquent accounts across all categories.

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