Beige Book Report: New York
May 31, 2023
Summary of Economic Activity
Economic activity in the Second District declined at a moderate pace in the latest reporting period. Still, the labor market has remained solid, though the pace of hiring has slowed slightly, and wage growth was little changed. Inflationary pressures have remained persistent, with the pace of selling price increases picking up slightly in the service sector. Supply availability, while still constrained, continued to improve, though goods production was sluggish. Consumer spending continued to increase at a steady clip, and tourism in New York City is nearing pre-pandemic peaks. The home sales market and rental market have been strong, with record-high rents in New York City. Commercial real estate markets were mostly unchanged. Conditions in the broad finance sector continued to worsen. Regional banks reported ongoing tightening in credit conditions and declining loan demand. Amid heightened uncertainty, businesses expect little improvement in the months ahead.
Labor Markets
Labor market conditions have remained solid, though there have been scattered signs of cooling as heightened uncertainty has made some businesses more cautious. While employment has continued to increase, on net, the pace of hiring has slowed slightly. Moreover, businesses in the construction, transportation, and finance sectors reported a significant decline in employment in recent weeks. Nonetheless, layoffs have generally remained concentrated in large companies outside the region. Though still challenging, it has become slightly easier to find workers—particularly for smaller businesses that have struggled to do so through much of the recovery. Still, a contact at a New York City employment agency indicated that labor demand has remained strong and that recent stress in the banking sector has not had broader impacts in the local labor market. A contact at an upstate New York employment agency noted strong demand for workers with leadership and technology skills. Contacts report that attrition rates remain exceptionally low.
Wage growth has been little changed in the latest reporting period. Although some contacts expressed concern about ongoing increases in New York State's minimum wage, most businesses plan to hire in the months ahead.
Prices
Inflationary pressures have remained persistent. Businesses reported that the pace of input price increases has held steady in recent weeks, though there has been some abatement in the prices of raw materials such as steel and aluminum. The pace of selling price increases in the manufacturing sector was also little changed, while selling price increases picked up slightly in the service sector and more noticeably among retailers. Businesses generally expect pricing pressures to remain fairly widespread in the coming months.
Consumer Spending
Consumer spending continued to increase at a steady clip in the latest reporting period. Though spending on travel-related services declined somewhat from exceptionally high levels since the last report, this decline was offset by strong spending at apparel and department stores, hardware and home furnishing stores, and at restaurants and bars. Auto dealers in upstate New York reported that sales of new vehicles increased slightly as inventory continued to steadily improve, while sales of used vehicles softened. With elevated prices and more limited inventory of used vehicles, contacts noted that some consumers have opted instead for a new vehicle.
Manufacturing and Distribution
Manufacturing activity fell sharply in recent weeks, continuing a prolonged period of weakness. New orders and shipments have been erratic but sluggish. Supply availability improved, delivery times shortened somewhat, and inventories declined. Businesses in transportation & warehousing also reported falling activity, while wholesalers saw activity increase. Manufacturing and distribution firms generally do not expect conditions to improve much in the months ahead.
Services
Service sector activity declined moderately in the latest reporting period. Businesses in the personal services sector reported a particularly sharp contraction, while activity reportedly held steady for leisure & hospitality and education & health providers. On balance, businesses in the service sector expect little improvement in the coming months.
Tourism activity in New York City has remained strong and is nearing pre-pandemic peaks. Business travel has continued to pick up, particularly domestic travel, despite competition with destinations in warmer parts of the country. For the first time in three years, graduation season has brought many international visitors to New York City. European tourists are returning in large numbers but lags in visa processing have continued to constrain visitors from China and parts of South America. Hotel performance has remained on a strong upward trend, and New York City has had the highest hotel occupancy rates of all the major markets in the country in recent weeks.
Real Estate and Construction
The residential sales market has been strong across the District in the latest reporting period. A New York City-area contact reported that the sales market in and around New York City has picked up strongly in recent weeks after a brief pause in early April due to uncertainty related to stress in the banking sector. After a slow start to the year, housing markets in upstate New York have also started to pick up, with bidding wars and multiple offers becoming more common. Inventory remains exceptionally low and is restraining sales activity in much of the District. A key factor suppressing new listings is the prevalence of homeowners with historically low interest rates on their existing mortgages, reducing the incentive to sell and move.
Residential rental markets have continued to firm. Rents are at all-time records in Manhattan, Brooklyn, and Queens and vacancy rates remain exceptionally low. Rents remain at a high level in much of upstate New York as well. A strong economy and relatively high mortgage rates have pushed some movers to the rental market, boosting demand.
Commercial real estate markets were little changed in recent weeks. Office vacancy rates were steady at elevated levels across the District and rents were mostly flat. New York City's retail market weakened, with increases in vacancy rates and rents trending down. By contrast, vacancy rates remained at low levels in the industrial market and rents trended up modestly, except in northern New Jersey, where vacancy rates increased somewhat.
Overall, construction contacts reported that conditions continued to weaken since the last report. Office construction remained steady at a low level in most of the District, though there were some new starts in northern New Jersey, Long Island, and upstate New York. Industrial construction activity was little changed across the District, with some new space coming to market in the second and third quarters of this year. Multi-family residential starts increased in New York City and parts of upstate New York but remained weak elsewhere.
Banking and Finance
Conditions in the broad finance sector continued to worsen in recent weeks at a similar pace to the last reporting period. Small to medium-sized banks reported lower loan demand across all loan segments, including refinancing. Credit standards tightened for all loan types, and loan spreads continued to narrow. Most banking contacts reported higher deposit rates. Delinquency rates increased on all mortgage and loan types.
Community Perspectives
Community leaders reported that heavy congestion and long commute times make transportation difficult for many people, particularly those living in the New York City area. Employers noted that transportation is especially challenging for lower-wage workers, who often face extended travel times. Though hybrid working arrangements have reduced the number of workers commuting to city centers in the region, there has been an influx of younger remote workers residing in these areas to take advantage of urban amenities and conveniences.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy