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Beige Book Report: New York
January 12, 2022
Summary of Economic Activity
Growth in the Second District economy slowed to a subdued pace, reflecting widespread supply disruptions, labor shortages, and the outbreak of Omicron across the District. However, contacts continued to express fairly widespread optimism about the near-term outlook. Businesses continued to report increases in selling prices, input costs, and wages. The job market has remained exceptionally tight, with businesses planning to hire more workers, on net, in the months ahead. Consumer spending was mixed, with vehicle sales weakening further but retail holiday-season sales characterized as solid. The home sales market has been unusually robust for this time of year, and apartment rental markets strengthened slightly; commercial real estate markets were somewhat stronger. Both residential and commercial construction activity weakened, with contacts noting scattered shortages of materials. Finance-sector contacts reported ongoing improvement, while regional banks reported stronger loan demand from commercial borrowers but weaker demand from the household sector.
Employment and Wages
Employment has continued to increase modestly, restrained by ongoing labor shortages. Staffing agencies in both New York City and upstate New York reported that hiring orders have remained fairly strong during this typically slow season, particularly for technology, sales and human resource workers. However, businesses have continued to experience difficulty in hiring and retaining workers. Labor shortages persist across a wide range of industries and occupations. Businesses in most sectors plan to add staff in the months ahead.
Contacts in all sectors continued to report widespread wage increases. An upstate New York employment agency noted continued escalation in wages while a New York City agency reported that there are large gaps between candidates' salary requirements and prospective employers' offers. Minimum wages across New Jersey and much of New York State were notched up on January 1st. More broadly, looking ahead to 2022, businesses across all major sectors foresee annual wage increases averaging around 6 percent.
A large majority of contacts continued to report escalation in input prices. Contacts noted shortages and exceptionally high costs of a wide range of supplies, including metals, chemicals, construction materials, glass bottles, and paper. A sizable majority of contacts in most sectors expect input prices to rise further in the months ahead.
Hikes in businesses' selling prices have also remained widespread, particularly in the manufacturing, distribution, and retail sectors. A major retailer noted that its selling prices—based on merchandise acquisition costs negotiated months ago—have not yet risen significantly but are likely to in the first half of 2022. A majority of businesses plan to hike selling prices in the months ahead.
Consumer spending has been steady overall in the latest reporting period. Non-auto retailers characterized the holiday season as fairly successful: sales were robust in November but tapered off a bit in December, which was attributed largely to the Omicron outbreak. Supply disruptions caused scattered inventory shortages but were not too disruptive overall. One chain noted that in-store sales were moderately below 2019 levels but on-line sales boosted total business above pre-pandemic levels. New York City continued to lag the rest of the region, hampered by fewer commuters and visitors. Consumer confidence among New York State residents climbed to a 5-month high in early December.
New vehicle sales continued to weaken and were running well below late-2020 levels, restrained by the ongoing dearth of supply. Many dealers have had little or no inventory and generally reported a 6-month lag in filling orders from customers. However, sales of used vehicles have picked up noticeably, with inventories lean but shortages far less severe than for new autos.
Manufacturing and Distribution
Manufacturing activity grew at a slower pace in the final weeks of 2021, while activity in the wholesale, transportation, and warehousing sectors continued to expand briskly. Many contacts in these sectors reported further deterioration in the availability of supplies and escalating prices, which have impeded business activity. Still, looking ahead to the first half of 2022, these businesses continued to express fairly widespread optimism.
Service industry activity tapered off somewhat in the final weeks of 2021. In particular, businesses in the leisure & hospitality and, to a lesser extent, education & health sectors noted a drop-off in activity—likely reflecting the Omicron outbreak. Information industry contacts also noted a slowdown. However, contacts in professional & business services noted steady, moderate growth. Businesses in all these industries generally remained optimistic about the near-term outlook.
There are indications that the Omicron outbreak has dampened both tourism and other service-sector activity in New York City. Subway ridership, which had been trending up through November, turned down noticeably in December and was more than 50 percent below comparable 2019 levels in the second half of the month. New York City's New Year's Eve celebration in Times Square was scaled back sharply, with crowd capacity limited to 15,000—a small fraction of typical pre-pandemic turnout.
Real Estate and Construction
Sales activity remained relatively strong in the final weeks of 2021. The volume of co-op and condo sales in Manhattan remained high, particularly at the upper end of the market, and inventories have fallen to more normal levels. One industry expert noted that some sellers are eager to make sales before the end of December due to uncertainty about tax changes in 2022. Elsewhere across the District, increasingly lean inventories of unsold homes have restrained sales, pushed up prices, and led to frequent bidding wars.
New York City's residential rental market was slightly stronger in recent weeks, as vacancy rates have continued to edge down, rents have edged up, and concessions have diminished. Rents on larger apartments, and those in doorman buildings are now generally above pre-pandemic levels.
Commercial real estate markets strengthened slightly, on balance, across the District. In Manhattan, availability rates were little changed in recent weeks, rents showed signs of leveling off, and leasing activity has been steady at a fairly brisk level. Across the rest of the metropolitan region, office vacancy rates declined modestly, and rents were steady to slightly higher. In upstate New York, markets were steady to slightly weaker. The industrial market continued to strengthen, with vacancy rates steady to down slightly near record lows and rents continuing to escalate. The retail leasing market, though still soft, has shown signs of picking up.
Construction sector contacts reported a slight uptick in activity, on balance, though some noted that ongoing supply shortages and soaring prices have continued to restrain activity. Both multi-family residential and non-residential construction starts weakened, though there continues to be a good deal of ongoing construction in the pipeline.
Banking and Finance
Contacts in the broad finance sector reported ongoing improvement in business conditions. Small to medium-sized banks in the District reported little change in overall loan demand, noting a pickup for commercial mortgages but weaker demand for consumer loans and residential mortgages. Refinancing activity declined. Both credit standards and delinquency rates were reported as unchanged across all loan segments.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy