Beige Book Report: New York
October 21, 2020
Summary of Economic Activity
Economic activity in the Second District economy grew slightly in the latest reporting period, as the pace of re-opening has been gradual and the virus spread has remained subdued across most of the District. Employment has been steady overall, with some industries adding jobs but others reducing headcounts. Input prices continued to rise moderately, while selling prices were little changed. Consumer spending has flattened out, while tourism has picked up somewhat but remains depressed. Housing markets have been mixed but, on balance, somewhat stronger, while markets for office and retail space have softened further. Commercial construction activity has remained depressed, though residential construction has shown scattered signs of picking up. Finally, banks reported increased demand for commercial and home mortgages, tighter credit standards, and a downward shift in delinquency rates for commercial and residential mortgages. Overall, business contacts have become somewhat less optimistic about the near-term outlook.
Employment and Wages
The labor market has been steady, on balance, in recent weeks. Manufacturers, wholesalers, and leisure & hospitality firms have reported some net hiring, whereas contacts in the information, transportation, and construction sectors have reported modest staff reductions. A major upstate New York employment agency noted a pickup in hiring, particularly for manufacturing and customer support jobs. A New York City agency specializing in office jobs noted scattered hiring in the financial sector but characterized the job market overall as sluggish, with many job-seekers laid off from retail and hospitality. This contact also noted that many companies are still largely operating remotely and are reluctant to on-board new staff to work from home.
Business contacts in most sectors said they plan to increase staffing levels in the months ahead, with the most widespread gains anticipated among manufacturers. In contrast, more transportation & warehousing firms plan to reduce than expand employment.
Wages have edged up overall, except in the information sector, where contacts mostly reported flat to declining wages. Looking ahead, businesses generally expect wages to accelerate modestly—particularly in the trade & transportation sector.
Prices
Business contacts reported that input costs continued to rise moderately. In particular, contacts involved in construction noted sharply increasing prices for lumber and other construction materials. A number of contacts noted that, aside from the prices of inputs, they have incurred additional costs in adapting to new safety concerns and complying with regulations. Retailers and wholesalers reported some increases in selling prices, but businesses in other sectors indicated that selling prices were little changed. Looking ahead, somewhat more contacts than in recent months indicated plans to raise their selling prices—most notably, in the retail sector.
Consumer Spending
Consumer spending showed signs of leveling off since the last report. Retailers reported that sales grew at a subdued pace in recent weeks, as restrictions continued to be gradually eased, though business remained well below pre-pandemic levels. Stores in upstate New York tended to outperform those in other areas.
New vehicle sales softened further in the latest reporting period, with sales down from brisk summer levels, according to dealers in upstate New York. This continued pullback is largely attributed to low inventories, though one contact noted that inventory levels picked up starting in late September. Sales of used vehicles have held up better due to less pronounced inventory problems. Separately, consumer confidence among New York State residents rose notably in September, reaching its highest level since the beginning of the pandemic.
Manufacturing and Distribution
Manufacturing activity has picked up in the latest reporting period, growing at a moderate pace. Wholesale trade firms noted a brisk rebound in activity, which had been flat or declining since the onset of the pandemic. In contrast, contacts in the transportation & warehousing sectors continued to report weakening business activity, with some noting difficulties in replenishing inventories.
Looking ahead, manufacturers and wholesalers remained largely optimistic, while transportation & warehousing contacts have grown increasingly pessimistic.
Services
Service industry contacts generally reported that business activity has been steady to slightly lower, after weakening during the late summer. Contacts in the professional & business services and education & health sectors reported steady activity, while those in leisure & hospitality and information reported slight declines. Service firms generally indicated they do not expect activity to change significantly in the months ahead
Tourism has shown scattered signs of a pickup. The more rural tourist destinations across the region have reportedly fared reasonably well. New York City's tourism sector, in contrast, has been depressed, though there have been signs of modest improvement. Hotels have seen some pickup in occupancy, but a sizable proportion remain closed, and those that are open are still at somewhat below half capacity—with about half of that reflecting arrangements with the city to house the homeless. While business travel has remained moribund, a pickup in weekend occupancies signals some return of leisure visitors—a trend that was also evident in strong attendance at the 9-11 memorial site and a modest increase in visits to local museums. New York City restaurants, which benefited from a broad expansion in outdoor dining during the summer, have more recently been allowed to restart indoor dining with limited capacity—a change that occurred earlier on in the rest of the District. As the onset of cold weather inevitably reduces outdoor dining, many are concerned that demand for indoor dining will be limited by safety concerns. Movie theaters have reopened in New Jersey and Connecticut but remain closed in New York.
Real Estate and Construction
Housing markets have improved somewhat across much of the District. New York City's sales and rental markets have continued to weaken, while markets elsewhere—particularly for single-family homes—have been increasingly robust. New York City's rental vacancy rate has surged to a multi-decade high, and rents have fallen by roughly 10 percent from pre-pandemic levels, as landlord concessions have become more common. Demand for smaller units has fallen particularly sharply. Rents and rental vacancy rates across the rest of the District have generally been stable.
The residential sales market has been mixed. Sales of Manhattan condos and co-ops have been sluggish and running nearly 50 percent lower than a year earlier, while the listing inventory has risen sharply; still, prices have been reasonably steady thus far. Across the rest of the District—even in other parts of New York City and the metro area—inventories have fallen to low levels and prices have climbed. Sales volume has risen but continues to be constrained by limited supply. In some areas, bidding wars were reported to be increasingly common.
Commercial real estate markets have weakened further. Office availability and vacancy rates have risen sharply in New York City and moderately across the rest of the District. Similarly, office rents have declined noticeably in New York City, running about 8 percent lower than a year ago. Across the rest of the District, office rents were steady to down modestly. Retail vacancies have continued to increase, and asking rents have declined further.
New construction activity has remained sluggish and well below year-earlier levels. Single-family construction has increased somewhat in recent months, while multifamily construction has remained sluggish, and commercial construction has been particularly depressed. Contacts in real estate and construction expressed increasing concern about the near term outlook.
Banking and Finance
Small to medium-sized banks in the District reported increased demand for residential and commercial mortgages but little change in demand for other categories of loans. Refinancing activity increased. Bankers reported some tightening in credit standards on commercial mortgages but stable credit standards across all other categories. Delinquency rates declined for residential and commercial mortgages but remained stable for consumer and commercial & industrial loans. Finally, bankers reported increasingly lenient policies for delinquent accounts across all categories.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy