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Beige Book Report: New York
June 2, 2021
Summary of Economic Activity
Economic activity in the Second District continued to grow strongly in the latest reporting period, as vaccinations expanded and COVID cases abated across the District. Business contacts expressed widespread optimism about the near-term outlook. The labor market has strengthened further, with contacts reporting increased employment and wages, as well as difficulties hiring and retaining staff. Input price pressures have intensified further, and more businesses report that they are raising their selling prices. Consumer spending has strengthened, bolstered by accelerating auto and retail sales and rising tourism. Housing markets have been steady to stronger, while markets for office and retail space appear to have stabilized at weak levels. Finally, contacts in the broad finance sector reported moderate improvement in conditions, while regional banks reported higher loan demand and little change in delinquency rates.
Employment and Wages
The job market strengthened further in recent weeks, with more businesses reporting a pickup in employment and widespread labor shortages. A major New York City employment agency noted a significant increase in hiring and a greater sense of urgency to fill open positions. Similarly, an upstate employment agency noted increased hiring activity for both payroll and contract workers and indicated that filling job openings have been challenging. Many business contacts ranked staffing as a top business concern, especially at the lower end of the wage spectrum, and attributed this to a combination of workers' health concerns, child-care constraints, and generous unemployment benefits.
A broad array of businesses plans to add staff in the coming months—particularly those engaged in leisure & hospitality, manufacturing, retail, and wholesale trade. A major employment services firm expects the tight labor market to intensity, as businesses bring staff back to the office and many workers are looking to change jobs.
Wages have continued to grow moderately, with especially widespread increases in the retail and wholesale trade sectors. Looking ahead, a substantial proportion of businesses across all major industry sectors plan to raise wages.
Firms' input prices have continued to accelerate across the board, with an overwhelming majority of contacts in construction and manufacturing noting increases. Businesses in all sectors expect widespread hikes in prices they pay in the months ahead.
Selling prices accelerated modestly, with hikes widely reported in manufacturing, retail, wholesale trade, and transportation but steady prices in most other sectors. The vast majority of manufacturers, retailers, wholesalers, and transportation firms plan price hikes in the months ahead. More moderate increases were anticipated in other industry sectors. Uncertainty about future inflation was also cited as a concern in planning and formulating contracts.
Consumer spending picked up to a strong pace of growth in recent weeks. Non-auto retailers reported a substantial increase in business, with some reports of a sharp rebound in demand for luggage and formal wear. A major retail chain noted that its sales in the region have exceeded plan, though sales in New York City continued to lag, partly due to weak international tourism. Retailers also expressed increasing optimism about the near-term outlook. Consumer confidence among New York State residents surged to a two-year high.
Sales of both new and used vehicles have strengthened noticeably since the last report, far surpassing pre-pandemic levels, despite low inventories. However, a persistent shortage of microchips is expected to keep inventories lean for a number of months, and this is expected to severely restrain new vehicle sales. Dealers reported that credit availability continues to be satisfactory.
Manufacturing and Distribution
Activity continued to grow strongly in the manufacturing and wholesale trade sectors but slowed somewhat in transportation & warehousing. Contacts continued to report widespread supply disruptions and delays at ports and in trucking. Looking ahead, businesses in all these sectors continued to express widespread optimism about near-term business prospects, despite ongoing concerns about the future availability of workers and materials.
Service industry contacts also reported sturdy growth in the latest reporting period. Contacts in the hard-hit leisure & hospitality sector noted exceptionally strong gains in business activity. Businesses in the information, professional & business services, and education & health sectors all noted a continuation of fairly brisk growth. Looking to the months ahead, contacts in all these sectors expressed widespread optimism about business prospects.
Tourism has strengthened further, particularly in New York City, though the volume of international and business visitors has remained well below pre-pandemic levels. In New York City, hotel occupancy rates have continued to rise, exceeding 50 percent for the first time since before the pandemic, with weekend occupancy rates noticeably higher. Nightly room rates have risen but remained well below normal levels. Moreover, as restrictions have been lifted, a number of New York City hotels have re-opened, and the city has waived the hotel occupancy tax for the third quarter of this year. Museums and restaurants have also seen a rebound in business.
Real Estate and Construction
Housing markets continued to strengthen in the latest reporting period. Sales markets outside of Manhattan have remained quite robust, with rising sales volume, lean inventories, strong price appreciation, and frequent bidding wars. In Manhattan, sales volume has picked up strongly, while the inventory of homes for sale has receded somewhat from the peak levels of last October but remains higher than normal. Prices have stabilized at about 6 percent below pre-pandemic levels.
New York City's rental market remains soft but appears to have hit bottom. Rents in Manhattan are still down roughly 20 percent from early-2020 level and down 10-15 percent in Brooklyn and Queens. However, leasing activity has picked up substantially across the city reaching the highest levels in well over a decade. A local real estate expert ascribes this largely to more people moving for better deals.
Commercial real estate markets have remained mixed across the District but have shown signs of stabilizing overall. Office markets in and around New York City continued to slacken, with vacancy and availability rates continuing to trend up and rents steady but moderately below year-earlier levels in Manhattan and modestly below across the rest of the metro region. Office markets across upstate New York have been steady. The market for retail space has stabilized, with scattered signs of a pickup in some areas. The industrial market remains fairly robust, with vacancy rates steady at low levels and rents up 5-10 percent from a year earlier.
New office construction has remained sluggish, but multifamily residential construction has picked up outside New York City. Contacts in the District's construction industry have grown somewhat more positive about current conditions and substantially more optimistic about the near-term outlook, though there is widespread concern about the cost and availability of materials, especially lumber, and workers.
Banking and Finance
Businesses in the broad finance sector noted moderate improvement in business activity. Bankers reported a pickup in loan demand, mainly from the commercial sector. Credit standards were unchanged, except on residential mortgages where bankers tightened standards. Loan spreads were little changed. Delinquency rates were generally flat overall—down modestly for C&I loans, but up somewhat for residential mortgages. Banks reported that they have become less lenient toward delinquent accounts, except for commercial mortgages.