Beige Book Report: New York
March 8, 2023
Summary of Economic Activity
Economic activity in the Second District leveled off in early 2023 following a period of significant contraction. Supply availability continued to improve and is expected to improve further in the months ahead. Inflationary pressures remained persistent as the pace of both input and selling price increases picked up in recent weeks after a sustained period of moderation. The labor market has remained strong: employment increased slightly, wage growth picked up, and hiring plans remained solid. Consumer spending was steady to up slightly, and tourism has continued to strengthen. The home sales market has remained subdued but showed signs of picking up beyond the seasonal norm, while the rental market has firmed. On balance, commercial real estate markets were steady. Conditions in the broad finance sector improved somewhat, though regional banks continued to report widespread declines in loan demand, ongoing tightening in credit, and rising delinquency rates. Businesses expect economic conditions to improve modestly in the coming months.
Labor Markets
Labor market conditions have remained strong. On balance, employment increased slightly in recent weeks, with the strongest gains reported by businesses in the information and wholesale trade sectors. However, manufacturers indicated that employment declined for the first time since early in the pandemic. Still, job openings remained widespread and contacts at two major employment agencies indicated that concerns about a broader weakening in the labor market have not materialized. While it has become easier to attract and retain workers, finding workers with desired skills or experience remains a significant challenge. A New York City employment agency attributed some of the recent churn in the labor market to more workers looking for full or hybrid remote work options as many businesses have started to require more time onsite from their employees. Overall, hiring plans generally remain solid.
Wage growth picked up in early 2023, in part due to an increase in the minimum wage across the District. In the coming year, businesses expect wage increases to moderate to rates observed before the pandemic.
Prices
Inflationary pressures remained persistent. After a sustained period of moderation, business contacts reported that the pace of input price increases picked up in recent weeks. Of note, shipping charges, energy costs, and the prices of raw materials rose noticeably. Selling price increases also picked up after slowing for much of last year. Retailers and leisure & hospitality firms reported modest increases in their selling prices. Businesses expect both input and selling price increases to remain fairly widespread in the months ahead.
Consumer Spending
Consumer spending was steady to up slightly in early 2023. Nonauto retailers indicated that business steadied but remained sluggish in recent weeks, while spending on travel-related services and in restaurants and bars was up moderately. Auto dealers in upstate New York reported that sales of new vehicles were up modestly as inventory levels continued to improve. However, sales of used vehicles have remained soft. Consumer confidence edged down but remained high.
Manufacturing and Distribution
Manufacturing activity declined further in early 2023, following a period of sharp contraction. Contacts in wholesale distribution also reported declining activity, while businesses in the transportation & warehousing sector reported that activity steadied. A growing number of businesses indicated that supply disruptions continued to ease, and delivery times shortened for the first time since the pandemic began. Looking ahead, businesses in manufacturing and distribution expect conditions to improve somewhat in the coming months.
Services
Service sector activity continued to weaken in the new year, though at a slower pace than in the previous reporting period. Information sector businesses noted widespread weakening, while providers of professional & business and leisure & hospitality services reported modest declines in activity, and contacts in the education & health sector indicated some leveling off in activity after a sustained period of weakness. For the first time since last Fall, businesses in the service sector expect economic conditions to improve in the months ahead.
Tourism activity in New York City strengthened further in early 2023. Demand for hotel rooms continued to trend up, with hotel occupancy rates now just slightly below and average room rates modestly above pre-pandemic levels despite new hotels opening in the city. Attendance at Broadway shows has continued to improve, and a substantial number of shows are scheduled to open. Though business travel has yet to bounce back, domestic leisure travel has been strong, buoyed by the ability to work remotely. International travel continues to improve but has not returned to pre-pandemic levels.
Real Estate and Construction
The residential sales market remained subdued in early 2023, though there are signs that activity has begun to pick up beyond the seasonal norm. Real estate contacts in upstate New York reported that prices have been flat to down slightly, and that sales volume and buyer traffic remain sluggish. By contrast, sales of both single-family homes and apartments picked up in and around New York City, and prices held steady. The inventory of available homes has declined in Manhattan and has remained exceptionally low elsewhere. Bidding wars are still occurring for desirable properties in upstate New York and remain fairly widespread in and around New York City outside of Manhattan.
Residential rental markets have firmed. In Manhattan, rents remained high and have been little changed in recent weeks, even when taking landlord concessions into account. Already low rental vacancy rates in Manhattan edged down slightly. However, rents increased sharply in Brooklyn and Queens to start the year. Rents also remain high and continue to rise in upstate New York.
Commercial real estate markets were little changed in early 2023. Office vacancy and availability rates edged up in New York City and northern New Jersey and were steady across upstate New York. Office rents were flat across the District. Retail vacancy and availability rates held steady, though retail rents fell slightly. Vacancy and availability rates edged up from low levels in the industrial market and rents trended up modestly.
Construction contacts reported some stabilization in business conditions but remained pessimistic about the near-term outlook. New office construction starts remained at low levels in most of the District, though there was some pickup in northern New Jersey. New industrial construction starts were up in and around New York City but were little changed elsewhere. Multi-family residential starts remained weak across the District.
Banking and Finance
Contacts in the broad finance sector reported some improvement in business conditions. However, with rising interest rates, small to medium-sized banks in the District continued to report widespread declines in loan demand across all segments—especially residential mortgages. Already low levels of refinancing activity decreased further. Credit standards continued to tighten on all loan types except consumer loans. Loan spreads narrowed. Nearly all bankers reported higher deposit rates. Finally, delinquency rates rose noticeably on all types of loans.
Community Perspectives
Community leaders highlighted the pressures faced by many households from a lack of availability of childcare and preschool. Such services are operating at a reduced capacity because of teacher shortages, the decline in childcare centers, and the expiration of pandemic-era funding. Housing affordability remains a significant challenge, despite efforts to improve affordability through changes in zoning and regional collaborations to build more housing. A rise in homelessness and large influx of asylum seekers have increased demands on the region's shelter and transitional housing sector.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy