Beige Book Report: New York
October 18, 2023
Summary of Economic Activity
Economic activity in the Second District weakened modestly during the latest reporting period. Still, labor market conditions remained solid with contacts reporting ongoing modest employment gains and steady wage growth. Inflationary pressures moderated slightly in recent weeks, though supply chain conditions were unchanged after nearly a year of steady improvement. Consumer spending increased at a slightly slower pace, with declines in spending on experiences offset by increases in purchases of apparel and home goods. Tourism activity in New York City was strong, as several events attracted record visitors. Despite rising mortgage rates, home prices have continued to edge up with still-solid demand and exceptionally low inventory. Commercial real estate markets improved slightly. Conditions in the broad finance sector weakened somewhat, with loan demand continuing to decline and delinquency rates edging higher. Looking ahead, businesses in the District expected little improvement in conditions in the coming months.
Labor Markets
Labor market conditions have been solid since the last report. Overall, employment continued to increase modestly, though employment declined among retailers. Although layoffs were generally not occurring in the region, an upstate New York employment agency pointed to a slight softening in conditions in recent weeks.
Demand for workers remained solid across the District, particularly for those with skills in finance, accounting, and information technology. Many contacts noted that labor shortages continued to challenge hiring plans. A contact at a New York City employment agency noted that candidates are approaching job negotiations with greater seriousness and realism with regard to wages and in-person requirements, though these factors remain persistent challenges in the labor market.
The pace of wage growth has been steady in recent weeks, though firms in the wholesale trade sector reported greater wage increases. On balance, businesses anticipate only modest increases in headcounts in the months ahead.
Prices
Inflationary pressures moderated slightly in recent weeks. Service sector contacts reported some slowing in the pace of input price increases, while manufacturers indicated the pace of input price increases was little changed. The pace of selling price increases slowed somewhat among both manufacturing and service firms. Fewer businesses expect rising prices in the months ahead. Still, inflation remains a significant concern, and contacts noted that higher prices are taking a toll on household balance sheets and limiting discretionary income.
Consumer Spending
Consumer spending increased at a slightly slower pace in the latest reporting period with some shifts in the composition of purchases. Spending on apparel, interior furnishings, home electronics, and appliances grew at a steady clip after a period of stagnation. Meanwhile, spending on restaurants, travel, and entertainment slowed after a strong summer, in part reflecting seasonal shifts. Auto dealers in upstate New York reported moderate increases in sales, particularly for new cars, as inventory continued to improve. Still, sales remain well below pre-pandemic levels as limited inventory has constrained sales despite solid demand. One contact reported that higher financing costs are pushing some buyers to opt for more affordable models. Ongoing declines in used car prices have restored the normal gap between new and used car prices, boosting sales of used cars.
Manufacturing and Distribution
Manufacturing activity edged down during the latest reporting period. Supply availability was unchanged after nearly a year of steady improvement, yet several business contacts described difficulty obtaining high quality parts and products. These shortages were particularly noted for auto parts, and some anticipate the UAW strike will reduce the supply of vehicles in the coming months. While wholesalers reported solid growth in business activity, transportation & warehousing contacts noted declining activity. Manufacturers and distributors generally remained optimistic that conditions would improve in the months ahead.
Services
Service sector activity declined modestly in the latest reporting period. While there was some growth in the education & health sector, businesses in the information sector and those providing business services reported moderate declines, and leisure & hospitality firms noted more modest declines. Looking ahead, service firms generally do not expect conditions to improve in the coming months.
New York City tourism was strong in the latest reporting period. The overlap of the US Open tennis tournament and New York Fashion Week boosted visits and demand for hotel rooms, pushing average daily hotel rates near historical highs and hotel occupancy rates above 90 percent for several nights in September. Statue of Liberty visitors have surpassed pre-pandemic numbers in recent weeks, an indicator that the number of international visitors has picked up.
Real Estate and Construction
Persistently low inventory has remained a limiting factor in housing markets across the District and continued to restrain sales activity. Despite rising mortgage rates, home prices have continued to edge up with still-solid demand and low supply. One contact noted that bidding wars are being reported on nearly half of transactions in the New York City suburbs, where low inventory has been particularly acute. Real estate contacts in upstate New York reported an increase in activity with higher attendance at open houses, boosted by a steady inflow of people moving from New York City.
Residential rental markets remained tight across the District. Rents continued to rise in upstate New York. In New York City, rents were unchanged but at record high levels, with some scattered signs of cooling. New lease activity continued to fall, suggesting that landlords are opting to retain current tenants amid high turnover costs and plateauing rents. Further, renters are increasingly opting for shorter leases, reflecting sentiment that the pace of rent increases will not be sustained. Going forward, contacts anticipated that the increased enforcement of rules restricting short-term rentals in New York City would likely shift more units into the general rental inventory, providing some easing of supply constraints.
Commercial real estate markets improved slightly. In New York City, office vacancy rates declined since the last report, the first protracted decline since the pandemic began, and office rents were essentially flat. The industrial market worsened slightly, with increases in vacancy rates, though rents remained firm.
Overall, construction contacts reported sluggish activity since the end of the summer. Office construction was relatively flat across most of the District. Industrial activity grew, with high volumes under construction and new space set to come to market in the fourth quarter of 2023. Multifamily construction continued apace in the New York City area and in northern New Jersey, but such activity remained fairly weak in upstate New York.
Banking and Finance
After stabilizing, conditions in the broad finance sector weakened slightly during the latest reporting period. Small to medium-sized banks in the region reported lower loan demand across all loan segments, including refinancing. On balance, credit standards tightened for all loan types and loan spreads continued to narrow. Most banking contacts reported higher deposit rates. Delinquency rates edged up.
Community Perspectives
Community and education leaders around the District reported significant challenges with staffing shortages in schools. Teacher vacancies are higher this fall than in past years, particularly for math, world languages, and English as a new language. Additionally, key personnel such as counselors, librarians, school bus drivers, food service workers, and custodians are in low supply, placing increased pressure on existing staff and reducing the quality of the services provided. Financial pressures have mounted due to the combination of increased services, rising educational needs of the children of asylum seekers, and the winding down of federally provided pandemic relief funds.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy