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Beige Book Report: New York
December 2, 2020
Summary of Economic Activity
Economic activity in the Second District economy was flat in the latest reporting period. The labor market has remained weak, with employment in most industry sectors essentially unchanged. Input prices continued to rise moderately, while selling prices were little changed. Consumer spending has been little changed at subdued levels, while tourism has remained depressed. Housing markets have continued to strengthen, except in New York City, while markets for office and retail space have continued to soften. Finally, banks reported little change in loan demand, tighter credit standards, and an upturn in delinquency rates. Overall, business contacts have become less optimistic about the near-term outlook, with many contacts mentioning the recent pandemic wave, increased restrictions, and political uncertainty as major challenges.
Employment and Wages
The labor market has remained weak, with employment levels little changed in recent weeks. A major New York City employment agency reported that hiring has remained moribund and anticipated a rough patch through the winter but expressed hope for a pickup later in 2021. An upstate agency, on the other hand, indicated scattered signs of a pickup in hiring, especially for lower-wage workers, and noted particular difficulty in recruiting customer-service representatives. Despite the weak labor market, a number of business contacts have struggled to hire and retain skilled workers.
Businesses in many service industries—leisure & hospitality, education & health, wholesale trade, and information—reported flat to declining employment. However, manufacturers and retailers, on balance, reported modest increases in staff. Business contacts in most sectors said they plan to leave staffing levels at or near current levels in the months ahead, with the notable exception of construction, where considerably more businesses plan to reduce than expand employment.
Wages have picked up modestly, according to business contacts across a wide spectrum of industries. Moreover, an upstate New York employment agency noted a particular upward trend in wages at the lower end of the pay scale. Looking ahead, businesses generally expect wages to accelerate somewhat—particularly in the trade & transportation and education & health sectors.
Business contacts have reported somewhat more upward pressure on input prices in recent weeks. Businesses in manufacturing, distribution, education & health, and leisure & hospitality have generally noted more widespread escalation than those in other sectors. Construction contacts, on the other hand, reported somewhat less pronounced cost pressures than previously. Some business contacts have noted a pronounced acceleration in health coverage costs for 2021.
Regarding selling prices, retailers, distributors, and manufacturers reported some increases, but businesses in other sectors indicated that selling prices remained steady. Looking ahead, there has been a further modest increase in the proportion of businesses planning to raise their selling prices in the next few months—most notably in the retail and manufacturing sectors.
Consumer spending has been mostly flat since the last report. Retailers reported that sales have been steady to somewhat lower in recent weeks, with business remaining well below pre-pandemic levels. Stores in upstate New York continued to outperform those in other areas.
New vehicle sales were flat to down slightly, according to dealers in upstate New York, with the weakness attributed to a combination of low inventories, reduced dealer incentives, and some pullback in demand. Sales of used vehicles have been steady, also hampered by lean inventories. Consumer confidence among residents of the Middle Atlantic region (NY, NJ, PA) retreated in October and remains moderately below pre-pandemic levels.
Manufacturing and Distribution
Manufacturing growth has slowed to a subdued pace in the latest reporting period. In contrast, wholesale trade firms continued to report moderate growth, and businesses engaged in transportation & warehousing reported some pickup in activity.
Looking ahead, manufacturers have remained fairly optimistic about the outlook, while wholesalers' optimism has waned, and transportation & warehousing contacts have continued to be broadly pessimistic.
Service industry contacts generally reported that business activity has weakened noticeably in the latest reporting period. Contacts in the professional & business services and leisure & hospitality sectors reported widespread declines in activity, while those in the information and education & health sectors indicated more moderate declines. Looking ahead, professional & business service firms expressed mild optimism about prospects for the months ahead, whereas leisure & hospitality firms expressed increased concern that conditions would deteriorate.
Tourism, which had picked up somewhat in the previous reporting period, has more recently shown signs of weakening. A number of contacts attribute this to the recent wave of the pandemic across the nation and much of the world, as well as the onset of cold weather, which limits outdoor activities. An authority on New York City's tourism sector noted that most recent visitations have been short haul trips. Hotel occupancy rates have been noticeably higher on weekends than weekdays but are still well below 50 percent, and room rates are down sharply. Many city hotels are picking up some of the slack with alternative uses, such as providing shelter for the homeless. Advance bookings for the holiday season suggest only a modest uptick. While tourism is expected to rebound noticeably in 2021, it is projected to remain 25-30 percent below pre-pandemic levels, as the international and business segments are expected to lag.
Real Estate and Construction
Housing markets have continued to strengthen across much of the District. In both upstate New York and the areas around New York City, sales activity has been brisk, home prices have risen strongly, and the inventory of unsold homes has declined further. In New York City, conditions have been more mixed. Rental markets have weakened further: with increased landlord concessions, effective rents are reported to be down 15 percent from a year ago in both Manhattan and nearby Queens and down 5 percent in Brooklyn, as vacancy rates have climbed. The co-op and condo sales market has been more stable, with prices declining moderately in Manhattan but holding mostly steady in Brooklyn.
Commercial real estate markets have weakened further. Office availability and vacancy rates have continued to rise across the District, while asking rents declined in New York City but were steady to higher across the rest of the District. Retail vacancies have continued to increase across the District. Asking rents for retail space have fallen sharply in New York City but have been flat to down modestly in other areas.
New construction activity has remained sluggish and well below year-earlier levels for both residential and commercial structures. Contacts in the construction industry reported weakening activity and have grown increasingly pessimistic about the near-term outlook. One contact noted clogged supply chains as a major problem and attributed this partly to reduced availability of credit.
Banking and Finance
Contacts in the finance sector generally continued to report steady to declining business activity but have grown less pessimistic about the near-term outlook. Small to medium-sized banks in the District reported little change in overall loan demand, with increased demand for residential mortgages but decreased demand for commercial and industrial (C&I) loans. Refinancing activity increased. Bankers reported tightened credit standards across all categories. Spreads narrowed on all loan categories except C&I, where spreads were unchanged. Finally, bankers reported higher delinquency rates across all loan segments except commercial mortgages where delinquency rates held steady. Bankers reported no change in the degree of leniency on delinquent accounts across all categories.
For more information about District economic conditions visit: www.newyorkfed.org/regional-economy