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Beige Book Report: New York

December 5, 2018

Summary of Economic Activity
Economic activity in the Second District has grown modestly in the latest reporting period. The labor market has remained exceptionally tight, and wage growth has remained moderate. Businesses noted continued widespread escalation in input costs but moderate increases in their own selling prices. Prices of final goods and services have generally held steady. Manufacturing and distribution activity continued to grow briskly, while growth in most service industries has been more subdued, though there has been a pickup in the leisure & hospitality industry--particularly tourism. Consumer spending has remained mostly steady in recent weeks. Housing markets have softened further, while commercial real estate markets have been mixed. Finally, banks reported a pickup in loan demand from the business sector and a decline in delinquency rates across the board.

Employment and Wages 
The labor market has remained exceptionally tight across the District. A broad swath of businesses continued to note problems finding qualified workers. Turnover has reportedly increased, and a few contacts cited instances where new hires left for another job soon after or even before their start date. A couple contacts lost existing and prospective skilled workers due to immigration restrictions, including H-1B visas not being renewed.

Businesses reported steady to modestly rising employment, on balance. Firms in manufacturing, transportation, and information reported a modest pickup in hiring activity, and most retailers noted a typical seasonal pickup. Contacts in education & health, leisure & hospitality, finance, and wholesale again reported moderate net hiring. A large retail chain hired about the same number of holiday-season workers as in 2017, but the mix shifted a bit from in-store to supporting on-line sales. An upstate New York employment agency noted that clients are increasingly interested in direct hires versus contract workers.

Wage pressures remained widespread, though contacts in most industries noted that overall wage growth has been moderate. One contact did note a spike in salaries of college grads in tech fields. A few contacts noted increased use of non-wage benefits to attract and retain staff, such as increased health benefits and profit-sharing. A number of business contacts in New York State, mostly manufacturers, expressed concern about the upcoming minimum wage hike. One contact expressed concern about an upcoming jump in New York's threshold for counting workers as exempt from overtime.

Prices
Businesses reported continued widespread escalation in input prices but moderate hikes in selling prices. Input price pressures were particularly widespread in manufacturing, leisure & hospitality, and finance. Contacts across all industry sectors reported steady to moderately rising selling prices. A sizable proportion of businesses in leisure & hospitality, wholesale trade, and finance said they plan to hike prices in the months ahead.

Retailers generally indicated that selling prices, as well as the degree of discounting, have remained stable. Similarly, prices for New York City hotel rooms and Broadway theater tickets have been fairly stable in recent months.

Consumer Spending
Retail sales were generally reported to be mixed but, on balance, steady in recent weeks. A major retail chain noted that November sales were on plan and up modestly from last year, helped by a strong Thanksgiving weekend. Retailers in upstate New York reported that sales have been lackluster in November, with discounters out-performing other stores. One contact attributed sluggish store sales to the ongoing shift to on-line shopping. Inventories were generally said to be in good shape.

New vehicle sales were mostly flat in October and early November, according to dealers across upstate New York, but down from a year earlier--partly reflecting further reductions in incentives. New vehicle inventories were a bit on the high side. Sales of used vehicles, on the other hand, have been robust, with selling prices a bit higher than anticipated. Dealers indicated that credit conditions remained in good shape, though floor-plan credit has become a bit more expensive.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) retreated in October but remained near a cyclical high, based on the Conference Board's monthly survey.

Manufacturing and Distribution
Manufacturers and wholesale distributors noted ongoing brisk growth in activity in the latest reporting period, while transportation firms indicated steady activity. Looking to the months ahead, manufacturers continued to express fairly widespread optimism, while contacts in the wholesale trade and transportation industries were more guarded in their optimism. A few contacts continued to express concern about tariffs and recent and potential changes in trade policy.

Services
Growth has remained subdued in the latest reporting period. Contacts in professional & business services noted a pause in growth, while businesses engaged in the education & health, leisure & hospitality, and information industries noted a pickup in growth. In one sign of a pickup in tourism, Broadway theaters reported strong gains in both attendance and revenues, both of which have been running 15-20 percent ahead of this time last year. Looking ahead, contacts in education & health and professional & business services were fairly optimistic about the near-term outlook, while leisure & hospitality firms expect business to be flat.

Real Estate and Construction
Housing markets across the District have softened further, on balance, since the last report. In upstate New York, sales have slowed, and there have been fewer bidding wars, though the dearth of inventory has continued to boost selling prices. In New York City, sales of both existing co-ops and condos continued to weaken, while selling prices were flat to up slightly. The new development market has been very slack with sales and prices down noticeably. In Long Island, both home sales and prices have continued to rise but the pace has slowed. The inventory of unsold homes continued to rise in both New York City and Long Island, but it is still at a very low level. Much of the softening in and around New York City is attributed to a combination of increased financing costs, volatility in the financial markets, a drop in foreign purchasers, and changes in federal tax law that limit deductibility of homeowner costs. New York City's apartment rental market has been mixed: vacancy rates edged down in response to increased landlord concessions--particularly in new developments--while effective rents have been flat to down slightly.

Commercial real estate markets have been mixed but mostly steady. Office availability rates were steady to up slightly, while asking rents were up modestly, on average. Retail markets were increasingly slack across most of the District, and there is concern that this trend will accelerate after the holiday season. In contrast, industrial markets have remained solid, with availability rates steady at or near multi-year lows and rents rising briskly across the New York City metropolitan region.

New multi-family construction has been mixed but generally sluggish, though a substantial volume of residential development is currently under construction. New commercial construction starts--office, industrial, hospitality, and especially retail--have been very subdued, though there remains a good deal of office and industrial space under construction in and around New York City.

Banking and Finance
Small to medium-sized banks in the District reported lower demand for consumer loans but stronger loan demand from the business sector. Bankers also reported a decrease in refinancing activity. Credit standards were unchanged across all categories. Bankers reported lower loan spreads for residential mortgages, commercial mortgages, and C&I loans, and unchanged loan spreads for consumer loans. Contacts also reported an increase in the average deposit rate. Finally, bankers indicated that delinquency rates declined across all loan categories.

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