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Beige Book Report: New York

January 16, 2019

Summary of Economic Activity
Economic activity in the Second District has leveled off in the latest reporting period. Still, the labor market has remained tight, and wage growth has picked up slightly. Businesses noted that both input costs and selling prices continued to rise at a steady pace. Manufacturing activity leveled off, while business was down slightly in a number of service industries. On the other hand, tourism has remained fairly robust. Holiday season sales were a bit on the sluggish side but still up from a year ago. Housing markets have shown some further signs of softening, while commercial real estate markets have been steady overall. Finally, banks reported some weakening in loan demand and little change in delinquency rates.

Employment and Wages 
The labor market has remained tight across the District, with employers continuing to report difficulties in filling a wide variety of open positions. Businesses reported that employment was little changed, on balance, since the last report. Firms in manufacturing, wholesale trade, finance, and leisure & hospitality reported modest net hiring, while contacts in the transportation, health & education, and professional & business services sectors indicated that employment was flat to down modestly. Retailers noted little change in holiday-season hiring, relative to the prior year, though more staff was reportedly assigned to handling on-line orders.

Wages have picked up somewhat, particularly in retail and leisure & hospitality. Employers indicated that they are budgeting for moderately larger wage increases in 2019 than they did for 2018. A number of business contacts in New York State, including a few manufacturers, expressed concern about the recent hike in New York's minimum wage.

Businesses reported little change in the pace of both input price increases and selling price increases in the latest reporting period. Input price pressures tended to be most widespread in manufacturing, finance, and education & health. Contacts across most industry sectors reported steady to moderately rising selling prices. Two exceptions were real estate and transportation, where more contacts said they planned to reduce than raise their prices. A sizable proportion of businesses in transportation and wholesale trade indicated plans to hike prices in the months ahead.

Retailers generally indicated that selling prices remained stable, though some noted more widespread discounting than in recent years. Average ticket prices for Broadway shows rose less than usual this past December and were down more than 5 percent from a year earlier.

Consumer Spending
Retail sales were mixed but, on balance, up modestly. A major retail chain noted that holiday season sales were up modestly from the prior year but slightly below plan. Retailers in upstate New York were somewhat more upbeat, characterizing sales as fairly strong. A growing share of sales have been on-line, including merchandise ordered in advance and picked up at stores. Inventories were a bit leaner than usual going into the holiday season, but they were mostly at or slightly above desired levels at the start of the new year.

New vehicle sales were mostly flat in recent weeks, according to dealers in upstate New York, but down from a year earlier. New vehicle inventories remained a bit on the high side. Sales of used vehicles were mixed but, on balance, steady. Dealers indicated that credit conditions remained in good shape.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA), which had climbed to a cyclical high in November, retreated in December but remained quite elevated, based on the Conference Board's monthly survey.

Manufacturing and Distribution
The manufacturing and distribution sectors weakened noticeably in the latest reporting period. Manufacturers noted a sharp deceleration in business activity, while wholesale distributors and transportation firms reported outright declines.

Looking to the months ahead, contacts in these sectors remained somewhat optimistic, on balance, though less so than in recent months. As in recent reports, a handful of contacts continued to express concern about tariffs and trade restrictions.

Overall, business has been mixed but, on balance, softer in the latest reporting period. Contacts in the professional & business services, education & health, and information industries reported flat to declining activity at year end, though they remain cautiously optimistic about the near-term outlook.

Leisure & hospitality businesses reported steady, moderate growth. In particular, New York City saw fairly strong tourism over the holiday season. A local tourism-sector expert indicated that the number of visitors has climbed and hotel occupancy rates remained high, though visitors have been spending less, on average, than in the past. Broadway theaters reported strong gains in revenues and especially attendance, which was up more than 20 percent from a year earlier in December.

Real Estate and Construction
Housing markets across the District have softened since the last report. Homes sales in upstate New York have slowed somewhat, and the prevalence of bidding wars has receded; still, the inventory of homes on the market remains exceptionally low, and prices have continued to rise, reflecting solid demand and low supply.

In New York City, sales of existing co-ops and condos continued to slow, especially on new developments. Selling prices for newly-built condos have fallen sharply, while resale prices on existing apartments edged down last quarter but remained slightly ahead of a year earlier. The inventory of unsold homes has risen noticeably but is still fairly low by historical standards. Housing markets in the rest of the metro area have seen similar trends: weakening sales, steady prices, and rising (but still low) inventories. A local housing-industry expert noted that the curtailed federal tax deductibility of homeowner expenses has caused trepidation among both current and prospective homeowners.

Residential rents across the District have been mostly flat and little changed from a year earlier. In New York City, landlord concessions have remained ubiquitous, and this has helped to keep rental vacancy rates low.

Commercial real estate markets have been mixed but little changed overall. Office availability rates have been steady, while asking rents have been steady to up moderately. Retail markets have continued to soften, and there has been concern that retail vacancies will rise more sharply after the holiday season. Industrial markets, on the other hand, have remained robust: rents have continued to climb briskly and availability rates have been steady at or near multi-year lows.

New multi-family construction starts were sluggish, though a substantial volume of residential development remains under construction--particularly in New York City. New commercial construction starts have also been fairly subdued, aside from a sizable volume of new office development in Long Island.

Banking and Finance
Small- to medium-sized banks in the District reported lower demand for consumer loans, residential mortgages, and C&I loans, but steady demand for commercial mortgages. A decrease was also reported in refinancing activity. Bankers noted unchanged credit standards for residential mortgages but tightening standards for other types of loans. There was some further narrowing in loan spreads for consumer loans and residential mortgages. Finally, banks reported that delinquency rates held steady across all categories.

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