Beige Book Report: New York
April 19, 2017
Summary of Economic Activity
Economic activity in the Second District has expanded modestly since the last report, with labor markets remaining tight. Input price pressures have remained fairly widespread, while selling prices have continued to rise modestly. Manufacturers noted a deceleration in business activity, following brisk growth in the first two months of the year, while service-sector contacts have generally continued to report steady to modesty expanding activity. Consumer spending has been mixed in recent weeks, even as consumer confidence climbed to a multi-year high. Housing markets were mixed but, on balance, somewhat stronger since the last report, although the high end has remained relatively weak. As for commercial real estate, office markets were steady to somewhat slacker, while the industrial market continued to strengthen. New construction activity has been sluggish--both on the commercial and residential side. Banks reported that loan demand strengthened, while delinquency rates were mostly steady.
Employment and Wages
The labor market has remained fairly tight. Contacts at employment agencies continued to report tight job market conditions and fairly brisk labor demand--particularly for engineers and other tech workers. One New York City agency characterized hiring as steady at a moderate level, while two others--one in the city and one upstate--noted a pickup in hiring. However, one noted a pullback in hiring in the health insurance industry.
Manufacturers indicated that they have ramped up hiring in recent weeks, and businesses in education & health services reported that they have continued to add jobs, on net. Employment was reported to be steady to up slightly in other service industries. In contrast, contacts in the leisure & hospitality industry reported declining employment. Looking ahead, however, businesses in all industries indicated that they expect employment to rise, on balance.
Contacts across all service industries reported moderate wage growth and expected this to continue in the months ahead. Employment agency contacts in New York City noted some pickup in wages for new job openings, while a major agency in upstate New York indicated that wages have held steady.
Business contacts reported continued moderate growth in input costs but only modest increases in selling prices. Manufacturers, retailers and businesses in the leisure & hospitality industry anticipated moderate increases in selling prices in the months ahead, while those in other industries said they expect to keep their prices fairly steady. Broadway theaters reported that ticket prices, which had increased by more than the seasonal norm in the first two months of the year, have returned to more normal levels.
Retailers reported that sales were steady to up moderately. Retailers in upstate New York reported that sales picked up in March, after a flat February. A major retail chain noted that same-store sales were down slightly from a year earlier in March but still somewhat ahead of expectations. Sales in New York City were on par with the region overall, with little adverse effect from the mid-March snowstorm. Inventories were generally said to be at desired levels. Retail contacts have grown somewhat more optimistic about the near-term sales outlook.
Auto dealers in upstate New York reported that sales of new and used vehicles have continued to be strong in both February and March. Inventories of new vehicles have remained a bit high for certain makes and models, but are generally at satisfactory levels. Retail and wholesale credit conditions were reported to be in good shape, though one contact notes tightening for sub-prime loans.
Consumer confidence in the Middle Atlantic states (NY, NJ, PA) climbed again in March, reaching a 16-year high.
Manufacturing and Distribution
Manufacturers reported that growth in business activity has receded from the brisk pace seen in early 2017. Businesses in the wholesale trade and transportation industries reported steady to moderately growing activity. Businesses in manufacturing and wholesale trade remained widely optimistic about the outlook, while those in transportation & warehousing have become less upbeat.
Business in most service industries reported little change in general business activity since the last report, though contacts in education & health services reported steady, moderate growth. Looking ahead, businesses were generally optimistic about the outlook--particularly those in the information and professional & business services sectors. However, businesses in the leisure & hospitality industry were considerably less upbeat about the outlook.
Tourism has been mixed in New York City. Both hotels and Broadway theaters have seen a bit of a pickup since the last report. However, the outlook for international visitors has weakened noticeably: one industry expert has observed an increase in cancellations (conferences, meetings, school trips, etc.), a drop in airline ticketing and a marked decrease in inquiries from abroad. At least some of this slack is expected to be picked up by an increase in domestic visitors.
Real Estate and Construction
Housing markets across the District have been mixed but, on balance a bit stronger since the last report, with ongoing slack at the high end of the market. New York City's rental market has been steady to somewhat weaker. Landlord concessions have grown more prevalent in an effort to keep rents and vacancy rates steady. Effective rents (factoring in these concessions) have continued to decline--particularly on larger units and particularly in Manhattan. Elsewhere, rents continued to rise in northern New Jersey but were mostly flat across upstate New York.
New York City's co-op and condo resale market has improved somewhat. Sales volume increased, while prices were mixed--rising in Brooklyn and Queens but slipping in Manhattan. Inventories have risen somewhat in Manhattan but remain low; properties have been taking longer to sell, and bidding wars have become less common. In Long Island, Westchester and Fairfield counties, home sales activity was increasingly robust, while prices were steady to up only modestly. In upstate New York, the market has continued to strengthen, with exceptionally low resale inventories boosting prices and bidding wars.
Commercial real estate markets were steady to somewhat slacker in the first quarter. Office availability rates rose modestly across downstate New York and northern New Jersey but were steady in upstate New York. Asking rents, on the other hand, edged down in upstate New York but were steady to up slightly elsewhere. In New York City, office rents were flat but still up roughly 10 percent from a year earlier. In contrast, the market for industrial space has shown continued strength. Industrial vacancy rates continued to decline in northern New Jersey but leveled off elsewhere; however, asking rents continued to rise briskly and were up roughly 10 percent from a year earlier across the District. The market for retail space has softened noticeably with vacancy rates rising and asking rents flat to down modestly.
Finally, both residential and commercial construction were generally sluggish--likely adversely affected by wintry weather in March.
Banking and Finance
Small to medium sized regional banks reported stronger demand across all loan categories--especially residential mortgages. However, banks also indicated that refinancing activity decreased. Bankers reported that credit standards were unchanged. Contacts noted wider spreads of loan rates over cost of funds across the board, as well as an increase in the average deposit rate. Finally, bankers reported an increase in delinquency rates for C&I loans, but no change in delinquencies across other loan categories.