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Beige Book Report: New York

May 30, 2018

Summary of Economic Activity
Economic activity in the Second District has continued to grow at a modest pace. The labor market has shown further signs of tightening, with some reports of accelerating wages. Input price increases have become increasingly widespread, and consumer price inflation appears to have picked up slightly. Growth has remained fairly brisk in the manufacturing sector and has picked up somewhat in the service industries. Consumer spending has been steady to stronger in April and early May, buoyed by increased tourism. Housing markets have firmed slightly, while commercial real estate markets have shown scattered signs of slackening. Finally, banks continued to report rising loan demand and no change in delinquency rates.

Employment and Wages
Hiring has picked up somewhat, as the labor market has continued to tighten. A major employment agency in upstate New York reported that workers in skilled trades and information technology are in particularly short supply. A New York City agency noted labor shortages across a broad array of occupations and industries, with reasonably qualified job candidates receiving multiple offers and getting snapped up quickly. Labor shortages in upstate New York were attributed, in part, to an aging workforce.

Business contacts in finance and information continued to report fairly brisk hiring, while wholesalers and leisure & hospitality businesses noted moderate hiring. Firms in manufacturing, health & education, and professional & business services reported modest staffing increases, while retailers and transportation firms noted flat to declining employment. Looking ahead, contacts in finance and real estate planned to hire more briskly than those in other sectors.

Wage growth has remained modest across upstate New York but has picked up in and around New York City. While businesses in education & health services reported subdued wage increases, contacts across all other major service industries reported increasing wage pressures.

Prices
Businesses in most industry sectors reported increasingly widespread hikes in input prices--particularly in manufacturing, wholesale trade, and leisure & hospitality. Contacts in almost all industry sectors anticipated further increases in the months ahead.

Wholesalers report widespread hikes in selling prices, while those in other sectors reported more moderate increases. Still, retailers in both upstate New York and the New York City area noted that they have been less aggressive in discounting merchandise in recent weeks, boosting effective sales prices. New York City hotels and Broadway theaters have reportedly raised prices somewhat in recent weeks, with Broadway theater ticket prices up more than 10 percent from a year earlier. Looking ahead, businesses generally said they planned moderate price increases.

Consumer Spending
Retail sales were steady to stronger across the District in April and May. Retailers reported a noticeable pickup in sales in New York City, part of which was attributed to increased tourism. One retail chain noted that sales moved ahead of plan in recent weeks. In contrast, retailers in upstate New York indicated that sales were little changed, despite fairly brisk customer traffic, and a few store closings were reported. Inventories were generally reported to be at satisfactory levels, and retailers were moderately optimistic about the near-term outlook.

New vehicle sales in upstate New York weakened in April and early May and fell well short of comparable 2017 levels. In contrast, sales of used cars picked up. Vehicle inventories were said to be at or somewhat above desired levels. Dealers continued to characterize retail and wholesale credit conditions as favorable.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) climbed in April, reaching its highest level in almost two decades.

Manufacturing and Distribution
Manufacturers reported continued solid growth in business since the last report. Transportation firms noted a modest pickup in activity, while wholesalers indicated a fairly brisk increase. Looking ahead, manufacturers remained generally optimistic about the near-term outlook, though less so than earlier in the year. Wholesalers and transportation firms remained fairly optimistic.

Services
Reports from service-sector firms continued to indicate modest, if any, growth in activity. Contacts in professional & business services and leisure & hospitality reported modest growth, while those in the information sector reported activity was flat. Businesses in health & education services noted modest declines in activity, on balance. Looking ahead, professional & business service and information firms indicated that they were fairly optimistic about the near-term outlook.

Tourism in New York City has picked up further since the last report. Broadway theaters reported a pickup in both attendance and especially revenues, and retailers attributed some of a recent pickup in sales to increased tourism. New York City hotels noted an increase in occupancy rates and revenue per available room, even with a growing number of available hotel rooms.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, a bit firmer since the last report. Real estate activity in both the Buffalo and Rochester areas picked up noticeably, as strong demand, combined with lean inventories of homes on the market, have driven up prices and sparked increasingly widespread bidding wars. Low and declining inventories have also held down sales volume and driven up prices in downstate New York and southwestern Connecticut. Manhattan has been the exception: Inventories have been at moderate levels and edging up, and both sales activity and sales prices have declined modestly. Though its effect on the market is not yet clear, there is some concern about the new federal tax legislation reducing the deductibility of homeowner expenses.

The rental market has been mixed as well. Apartment rents have risen modestly across northern New Jersey, the Lower Hudson Valley, and upstate New York but have been flat across most of New York City, with record high landlord concessions. One exception has been The Bronx, where rents have risen fairly briskly. Throughout most of the region, the higher end of both the sales and rental market has continued to be relatively soft.

Commercial real estate markets have slackened somewhat overall. Office rents edged down in New York City and Long Island, while availability rates edged up and leasing activity slowed. Office rents and availability rates have been mostly steady across upstate New York and northern New Jersey, though leasing activity has slowed slightly. The market for retail space has also continued to soften across much of the District, though it has been steady across upstate New York. The industrial market, which had grown increasingly tight over the past year, has leveled off across much of the District, though it has continued to strengthen in northern New Jersey. A real estate industry contact noted that high rents and diminishing availability of industrial and warehouse space in New York City's outer boroughs has driven many businesses to relocate to northern and central New Jersey.

New multi-family construction starts have been steady to down slightly across the District. New industrial development has slowed as well, and new office construction has virtually ground to a halt, except in northern New Jersey, though it has slowed there as well. In all these categories, however, there continues to be a substantial volume of space under construction.

Banking and Finance
Small to medium-sized banks in the District reported higher demand for residential mortgages, commercial mortgages, and C&I loans, but unchanged demand for consumer loans and decreased refinancing activity. Banks reported tighter credit standards for consumer loans but unchanged standards across all other categories. Loan spreads narrowed for residential mortgages and C&I loans. Widespread increases were reported in average deposit rates. Finally, bankers reported unchanged delinquency rates across all loan categories.

For more information about District economic conditions visit: www.newyorkfed.org/data-and-statistics/regional-data-center/index.html