Beige Book Report: New York
March 2, 2022
Summary of Economic Activity
Growth stalled in the Second District in early 2022, with ongoing supply disruptions, worker shortages, and the Omicron outbreak impeding activity. Despite these challenges, contacts expressed fairly widespread optimism about the near-term outlook. Businesses continued to report substantial increases in selling prices, input prices, and wages. The job market has remained exceptionally tight, with businesses continuing to add staff, on net, and dealing with unusually high absenteeism. Consumer spending weakened noticeably in January, though retailers noted some rebound in business toward the latter part of the month and into early February. The home sales and rental markets remained robust in early 2022, and commercial real estate markets were slightly stronger. While commercial construction activity remained dormant, there was some pickup in multifamily residential construction. Finance-sector contacts reported some pullback in activity, while regional banks reported some weakening in household loan demand, along with steady to lower delinquency rates.
Labor Markets
Despite ongoing worker shortages, job growth picked up to a moderate pace. Staffing agencies reported that job openings remained plentiful, particularly for technology, sales, and human resource workers. One agency in New York City noted that many job candidates are being selective based on telecommuting policies, while an upstate New York agency noted that vaccination policies are a major sticking point. Worker shortages persist across a wide range of industries and occupations. Businesses in most major industry sectors plan to add staff, on net, in the months ahead.
Contacts in all sectors reported that they were raising wages and planned to do so in the months ahead. An upstate New York employment agency noted particularly rapid wage growth, and a New York City agency reported that companies have become somewhat more flexible on pay. The January 1st hike in minimum wages across New Jersey and much of New York State reportedly prompted many businesses in manufacturing, distribution, and leisure & hospitality to raise wages more than they otherwise would have—not just for workers at the threshold but for those somewhat higher in the wage distribution as well to mitigate wage compression.
Prices
The vast majority of businesses continued to report rising input prices. Businesses noted shortages and exceptionally high costs of freight, as well as a wide range of supplies. Contacts in all major industry sectors expect input prices to rise further in the months ahead.
A large and growing proportion of businesses report that they have raised selling prices, most notably in the manufacturing, wholesale & retail trade, and leisure & hospitality sectors. One large retail chain indicated that its selling prices in most categories would be ratcheted up over the course of 2022, reflecting higher merchandise acquisition costs. A large but steady share of businesses indicated plans to raise selling prices in the months ahead.
Consumer Spending
Consumer spending weakened somewhat in early 2022. Non-auto retailers reported that sales fell in January due to the Omicron outbreak and harsh winter weather, but showed signs of rebounding late in the month and into early February. Supply disruptions have continued to cause pockets of stockouts, but inventories overall have remained at or near desired levels. New York City continued to lag the rest of the region, hampered by the Omicron wave. Consumer confidence among New York State residents declined in January but remained at a fairly high level.
New vehicle sales remained weak in early 2022, restrained by the ongoing lack of inventory. The microchip shortage, which has kept inventories low, is not expected to abate until the second half of the year. Moreover, sales of used vehicles, which had been fairly solid in late 2021, also weakened, reflecting a combination of depleted inventory and exceptionally high prices, which have deterred some prospective buyers.
Manufacturing and Distribution
Manufacturing activity was essentially flat in early 2022, whereas businesses in the wholesale, transportation, and warehousing sectors continued to report fairly brisk growth. Contacts in these areas have indicated that continued worsening in supply disruptions and escalating prices have further impeded activity. Still, businesses in all of these sectors continued to express optimism about the near-term outlook, though to a somewhat lesser degree than in the last report.
Services
Activity in the service sector contracted in early 2022. In particular, leisure & hospitality businesses noted further weakening in activity—apparently driven largely by the Omicron outbreak. Education & health providers also noted some slowing. However, businesses in the information and professional & business services sectors reported that activity was steady to slightly higher. Still, businesses in all these industries remained broadly optimistic about the near-term outlook.
The Omicron outbreak led to a slump in both tourism and related service-sector activity in New York City in January, though there were scattered signs of a pickup in February. Hotel occupancy and revenue, which fell sharply in January, have begun to rebound, and trade shows have picked up, and this trend is expected to continue into March. A record low number of Broadway shows were open in January, but a dozen new shows are slated to open soon. Subway ridership, which had turned down sharply in December, began to resume its upward trend in January and through mid-February.
Real Estate and Construction
Home sales and rental markets have been robust, though activity has been constrained thus far in 2022, due to harsh weather, the Omicron wave, and a dearth of homes on the market. However, demand has remained strong, and prices have risen. Real estate contacts in upstate New York indicate that inventories remain exceptionally low, driving up prices and spurring multiple offers and bidding wars. Housing affordability is a growing concern in the region, and efforts are underway to rehabilitate "zombie" homes in some areas and convert some commercial space to residential.
New York City's residential rental market has picked up steam in recent weeks, as vacancy rates have continued to edge down and rents have accelerated. Rents have fully rebounded across much of the city.
Commercial real estate markets were mixed but, on balance, slightly stronger. Office markets were mostly steady, with both office availability rates and market rents essentially flat throughout most of the District. However, there were scattered signs of improvement in northern New Jersey, Lower Hudson Valley, and Fairfield County. The industrial market has continued to strengthen modestly, with vacancy rates steady but rents continuing to escalate. In contrast, the market for retail space, which had shown signs of picking up in late 2021, has weakened in the first few weeks of this year.
Construction activity was sluggish, likely reflecting unseasonably harsh winter weather. Non-residential construction starts weakened from already low levels, while multi-family residential starts picked up modestly. There continues to be a good deal of multi-family construction in the pipeline. Looking ahead, construction sector contacts expressed a good deal more optimism than in recent months about the general outlook, despite the ongoing challenge of elevated materials prices, supply bottlenecks, and shortages.
Banking and Finance
Contacts in the broad finance sector reported some weakening in business conditions but remained fairly optimistic about the outlook. Small to medium-sized banks across the District reported weaker demand for consumer loans and residential mortgages, but steady demand for commercial loans and mortgages. Refinancing activity was unchanged on net, though one contact noted strong demand from the commercial segment, reportedly driven by the potential for higher rates in the coming months. Credit standards were largely unchanged across all loan segments, while loan spreads narrowed slightly. Delinquency rates held steady for consumer loans and residential mortgages and decreased for commercial loans and mortgages.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy