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Beige Book Report: New York
January 14, 2021
Summary of Economic Activity
Economic activity in the Second District weakened moderately in the latest reporting period. The labor market has softened somewhat, with employment slipping in almost all service industries, where activity has been further constrained by a rise in COVID-19 cases, increased restrictions, and cold weather. However, businesses reported a modest increase in hiring plans and rising wage pressures. Input prices continued to rise at a moderate pace, and selling prices picked up modestly. Consumer spending declined, with holiday sales down from last year and auto sales weakening. Tourism picked up slightly in the latter half of December but was still at depressed levels. Housing markets have been mixed, while markets for office and retail space weakened further. Finally, banks reported some pickup in loan demand and little change in delinquency rates. Despite the recent weakening in business conditions, contacts grew somewhat more optimistic about the near-term outlook.
Employment and Wages
The labor market softened somewhat in the final weeks of 2020. A major New York City employment agency noted that hiring activity has been depressed, though this is typically a slow season; no significant pickup is expected until the spring at the earliest.
Businesses in almost all sectors, most notably construction and leisure & hospitality, reported weakening employment. The only exceptions were manufacturing and finance, where employment was reported to be little changed. Looking ahead, however, businesses expected that they would add staff, on net—especially in the manufacturing, wholesale trade, and information sectors
Wages have accelerated moderately, with more businesses indicating rising wages than at any point since the start of the pandemic. The most widespread increases were reported in the retail trade sector. A number of contacts in New York State remarked that the year-end hike in the minimum wage has been burdensome. Looking ahead, businesses expect wages to accelerate somewhat—particularly in retail & wholesale trade and, to a lesser extent, in construction, information and professional & business services.
Businesses' input prices overall have continued to rise moderately, with contacts in the manufacturing, distribution, and construction sectors reporting substantial upward pressure on prices paid. Businesses in most sectors expect further increases in the prices they pay in the months ahead.
Selling prices have accelerated modestly, led by fairly widespread hikes among retailers, wholesale distributors, and manufacturers. Looking ahead, a rising proportion of businesses indicated plans to raise their selling prices in the next few months—most notably in the wholesale and manufacturing sectors.
Consumer spending weakened since the last report. Retail holiday spending has been mixed. Sales at major retailers in New York City have been dismal, reflecting a lack of both tourists and office workers. However, retailers in upstate New York and other parts of the District noted that sales improved somewhat in December and were on or a bit above plan, though still down sharply from a year earlier.
New vehicle sales weakened further in late 2020, falling well below comparable 2019 levels, according to dealers in upstate New York. This weakness was attributed to both weaker demand and low inventories—particularly for trucks and SUV's. Sales of used vehicles also weakened, reflecting softer demand. Consumer confidence among residents of the Middle Atlantic region (NY, NJ PA) fell to a multi-year low in December, reflecting a weakening assessment of current conditions.
Manufacturing and Distribution
Manufacturing activity continued to expand at a subdued pace in December, while wholesale trade contacts reported weakening activity. Transportation firms noted a modest pickup in activity. A few contacts indicated delays in getting shipments from overseas.
Looking ahead, manufacturers and wholesalers expressed widespread optimism about the outlook, while transportation & warehousing contacts, who had been fairly gloomy in recent months, have become mildly optimistic in the latest reporting period.
Service industry contacts reported marked weakening in business activity in the latest reporting period. Contacts in the professional & business services, information, and leisure & hospitality sectors reported widespread declines in activity, while those in education & health reported more moderate declines. Looking ahead, professional & business service firms expressed increased optimism about prospects for the first half of 2021, while those in other industries expected little change.
Tourism in New York City has remained exceptionally weak, though there was a modest pickup in the latter part of December. Restrictions on indoor dining combined with the onset of cold weather have hit restaurants hard. A number of hotels have closed, some permanently, and the occupancy rate among those still open has hovered around 35 percent—higher on weekends, lower during the week. With business travel moribund, most hotel stays are from weekenders and subsidized housing for the homeless, with a bit of an uptick in late December from holiday visitors. An authority on New York City's tourism sector noted that advance bookings have grown much shorter, due to uncertainty about the pandemic, and expects visitations to rebound gradually over the next two years, with business and international visits lagging the most.
Real Estate and Construction
Housing markets have remained mixed in the latest reporting period. Sales markets in upstate New York remained strong in the final weeks of 2020, with homes selling quickly and prices continuing to rise. New York City's co-op and condo market has picked up in recent weeks, with both sales and prices rising modestly, though still below late-2019 levels. Housing markets in areas around New York City, on the other hand, have leveled off, following an exceptionally strong third quarter. The number of new listings is up from a year ago, while the inventory of homes on the market remains high in New York City but low elsewhere.
The residential rental market has continued to weaken, led by New York City. Partly reflecting increased landlord concessions, effective rents in Manhattan and Queens are reported to be down more than 20 percent from a year earlier and down 8 percent in Brooklyn. Rental vacancy rates across New York City are reported to be at multi-decade highs.
Commercial real estate markets have weakened further, to varying degrees, across the District. Retail and office markets have been particularly weak in New York City, with asking rents trending down and well below year-earlier levels. Elsewhere, office markets have been modestly weaker, while retail markets have mostly been flat. The market for industrial space, however, has remained fairly firm.
New construction activity has remained sluggish in both the residential and commercial segments. Contacts in the construction industry continued to report weakening activity but have grown substantially less pessimistic about the near-term outlook. Contacts continued to report sharp increases in the cost of materials and scattered shortages and delays.
Banking and Finance
Finance-sector contacts generally reported widespread declines in business activity since the last report. Small to medium sized banks in the District reported higher loan demand across all categories, along with a modest increase in refinancing activity in the final weeks of 2020. Bankers reported tightened credit standards for consumer loans and commercial mortgages and narrowing spreads across all loan categories. Delinquency rates declined for consumer and C&I loans but rose for commercial mortgages. Finally, contacts reported some increased leniency for delinquent commercial mortgages.
For more information about District economic conditions visit: www.newyorkfed.org/regional-economy