Beige Book Report: New York
June 1, 2022
Summary of Economic Activity
Economic growth in the Second District slowed to a modest pace in recent weeks, hampered by ongoing labor shortages, supply disruptions, and an upturn in COVID cases. Contacts have also become somewhat less optimistic about the near-term outlook. Businesses continued to report widespread increases in selling prices, input prices, and wages, as well as ongoing difficulty obtaining necessary supplies. The job market has remained exceptionally tight, with businesses continuing to add staff amidst high turnover. Both manufacturing activity and consumer spending slowed noticeably in recent weeks, although tourism continued to strengthen. While there were scattered signs of easing in the home sales market, it remained quite robust, and the residential rental market continued to strengthen. Commercial real estate markets were generally steady. Construction activity was little changed, with a good deal of multifamily residential development in progress. Finance-sector contacts reported little change in activity, while regional banks reported weaker loan demand but steady to lower delinquency rates.
Labor Markets
Businesses continued to report widespread labor shortages, impeding both new hiring and retention—particularly at small firms. Still, many businesses indicated that they continue to add staff—particularly in retail & wholesale trade and in professional & business services. A number of contacts indicated that COVID has exacerbated worker shortages, due to illness-driven absenteeism and resistance to vaccination requirements. Businesses in all major industry sectors plan to add staff, on net, in the months ahead.
A New York City staffing agency noted that demand for workers has remained strong across the board, despite recent financial market turmoil. An upstate staffing agency, however, suggested that the labor market, while still quite strong, had become less frothy. Likewise, a large business services firm noted some pullback in hiring in its industry.
A majority of businesses continued to indicate that they were raising wages and anticipated further increases in the months ahead. Wage gains have been most noteworthy in the construction, wholesale trade, transportation, and leisure & hospitality sectors. One employment agency observed that job seekers in the finance sector have become somewhat more negotiable on pay.
Prices
Most business contacts noted ongoing escalation in input costs for a wide range of supplies, as well as energy and freight. Contacts in all major industry sectors expect input prices to rise further in the months ahead.
The vast majority of businesses reported recent hikes in their selling prices, most notably in the manufacturing, wholesale & retail trade, and transportation sectors. Selling price increases were not quite as widespread as in the last report. Businesses generally expect their selling prices to rise by about 4-5 percent over the next year, but they expect inflation overall to run closer to 6-7 percent. However, a top concern expressed by a number of business contacts was that price volatility and the related uncertainty made it difficult to plan ahead—that is, set prices, negotiate contracts, and budget. When asked about longer-term inflation expectations, the typical firm expected inflation to be around 3 percent five years out.
Consumer Spending
Consumer spending slowed noticeably in recent weeks. Non-auto retailers reported a dip in sales activity, though a few contacts attributed this more to supply constraints than weak demand. Consumer confidence among New York State residents rose in April to its highest level in nearly a year, exceeding pre-pandemic levels.
New vehicle sales remained sluggish in recent weeks, still restrained by a dearth of inventory, reflecting the ongoing microchip shortage. Almost all new cars delivered to dealers are still being pre-sold 6-8 weeks in advance. Sales of used vehicles weakened, and prices have retreated somewhat though they remain high. One contact noted that high gas prices have shifted demand toward more fuel-efficient vehicles.
Manufacturing and Distribution
Manufacturing activity has turned down moderately in recent weeks, while the pace of growth slowed in the wholesale, transportation, and warehousing sectors. For the first time in well over a year, manufacturers noted some leveling off in unfilled orders. Contacts in these sectors continued to report widespread disruptions in transporting and obtaining goods. Wholesalers have grown less optimistic about the near-term outlook.
Services
Activity in the service sector has largely leveled off in the latest reporting period. Professional & business service firms indicated a pause in growth, while education & health providers and information firms reported subdued growth in business. However, contacts in the leisure & hospitality sector continued to see brisk growth, though not quite as strong as in the last report.
Similarly, tourism activity in New York City has continued to strengthen, despite the recent upturn in COVID cases, financial market turmoil, and strong dollar. The first half of May was exceptionally strong, buoyed mainly by domestic leisure visitors. One industry expert noted that hotel occupancy and average daily room rates, as well as attendance at Broadway theaters, have almost fully rebounded to pre-pandemic levels, and that there have been more trade shows and numerous gala events. While international tourism remains sluggish, visits from Canada and Europe have risen noticeably. However, visitors from Asia and countries where visas are needed remain sparse.
Real Estate and Construction
Housing markets have generally remained solid, though there have been some scattered signs of slowing in the sales market. Sales activity continues to be restrained by low inventory, but there are also signs that declining affordability has deterred some buyers. Still, real estate contacts in upstate New York cite bidding wars, all-cash deals, and homebuyers waiving inspections as signs that it is still a sellers' market. In Manhattan, apartment sales transactions so far this year have been the highest on record, and sales volume in the rest of the city has also been exceptionally high. Home prices continued to climb across the District.
Residential rental markets have remained strong, as reflected in rising rents, brisk leasing activity, and low inventories—particularly at the higher end of the market. In New York City, rents rose sharply in April, reaching a new record high. Rents on smaller and lower-end apartments had been lagging but are now catching up. Landlord concessions are no longer common, while bidding wars for both doorman and non-doorman apartments have become more frequent. With rents rebounding to well above pre-pandemic levels in New York City, affordability has been a widespread and growing concern.
Commercial real estate markets have been mixed since the last report. Office markets across the District were steady to slightly weaker, with vacancy rates edging up in Manhattan but little changed elsewhere. In New York City, office rents remained flat and well below pre-pandemic levels. Elsewhere across the District, office rents are holding at or above pre-pandemic levels and are trending up in northern New Jersey. The industrial market has remained firm, with vacancy rates leveling off but rents continuing to rise briskly. However, the market for retail space has remained weak.
Construction activity has remained steady overall. Nonresidential construction starts have weakened for both commercial and industrial space. Industry contacts, however, were quick to note that much of the softness reflects widespread shortages of labor and materials, as well as escalating costs. New residential starts have also been somewhat sluggish, but a great deal of multi-family construction activity is in progress.
Banking and Finance
Contacts in the broad finance sector continued to report little change in activity and remained fairly optimistic about the outlook. Small to medium sized banks in the District reported lower loan demand overall: Demand rose for commercial mortgages but declined for consumer loans, business loans, and residential mortgages. Refinancing activity also decreased. Credit standards were little changed. Loan spreads widened across all loan segments, and bankers reported higher deposit rates overall. Delinquency rates were lower on business loans and residential mortgages but steady otherwise.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy