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Beige Book Report: New York

March 6, 2019

Summary of Economic Activity
Economic activity in the Second District has increased slightly since the last report. The labor market has remained tight, and wage growth has picked up further—mainly in lower wage industries. Businesses noted continued widespread cost pressures and increasingly widespread hikes in selling prices. Manufacturing activity expanded slightly, while business picked up in a number of service industries. Consumer spending has been weaker, on balance, and tourism has been mixed. Housing markets have been stable to slightly softer, while commercial real estate markets have remained steady overall. Finally, banks reported steady to weaker loan demand and a modest upturn in delinquency rates.

Employment and Wages
The labor market has remained tight across the District, with employers reporting ongoing difficulties in filling job openings, particularly for skilled trades and technical fields. Businesses generally reported that employment was flat to up slightly, on balance, since the beginning of the year. Firms in the wholesale, finance, and education & health sectors reported modest net hiring, while contacts in the manufacturing, transportation, professional & business services, and real estate & construction sectors indicated that employment was essentially flat. Contacts in the retail and information industries noted modest net declines in staffing levels.

Wages have picked up further, particularly in the lower-wage retail and leisure & hospitality industries. A number of business contacts in New York State’s manufacturing, retail, and leisure & hospitality sectors indicated that the year-end hike in the minimum wage was affecting their employment and compensation decisions.

Prices
Businesses reported ongoing widespread escalation in input prices and increasingly widespread hikes in selling prices in the latest reporting period. Input price pressures tended to be most widespread in transportation and wholesale & retail trade sectors. Contacts across most industry sectors reported steady to moderately rising selling prices, with the most widespread rises reported from wholesalers. Contacts in the real estate and education & health sectors reported that selling prices were flat overall.

Retailers generally indicated that selling prices were up modestly in early 2019, though one major chain reported more discounting than usual to clear out excess holiday-season inventories. Nightly rates for New York City hotel rooms were little changed from a year earlier, and average ticket prices for Broadway shows continued to slip further and were down 5-6 percent from a year earlier.

Consumer Spending
Retail sales were mixed but sluggish, on balance. A major retail chain noted that sales were well below plan in January and down from a year earlier before rebounding modestly in early February; the weakness was partly attributed to adverse weather and the government shutdown. Reports from retailers in upstate New York were more upbeat, characterizing sales activity as solid. Inventories, which were a bit leaner than usual going into the holiday season, were generally said to be in good shape as of mid-February.

New vehicle sales have weakened in early 2019, according to dealers in upstate New York, falling well below early-2018 levels. Some of this weakness was attributed to harsh winter weather. New vehicle inventories remained somewhat high, on balance. 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 and edged down further in January, based on the Conference Board’s monthly survey.

Manufacturing and Distribution
The manufacturing and distribution sectors picked up somewhat in the latest reporting period. Manufacturers noted a modest pickup in growth, while wholesale distributors and transportation firms reported solid gains, following weak reports at the end of 2018.

Looking ahead, contacts in the manufacturing and wholesale trade sectors have regained a fairly high level of optimism, but those in the transportation sector have remained more circumspect. A number of contacts continued to express concern about tariffs and trade restrictions, as well as New York State’s minimum wage hikes.

Services
Overall, business has been mixed but, on balance, up modestly in the latest reporting period. Contacts in the information and health & education sectors reported flat activity in early 2019, while businesses in professional & business services noted some pickup in activity.

Leisure & hospitality businesses reported steady, moderate growth. Tourism was mixed in New York City, following a brisk holiday season. A local tourism-sector expert indicated that hotel occupancy rates, though still fairly elevated, slipped below year-ago levels. However, Broadway theaters continued to report strong year-over-year gains in revenues and especially attendance, which was up nearly 20 percent from a year earlier in both January and early February.

Real Estate and Construction
Housing markets across the District have been stable to somewhat softer since the last report. Homes sales in upstate New York have slowed further, though the inventory of homes on the market has remained low, and prices have continued to rise. In New York City, sales of existing co-ops and condos have slowed further. Selling prices for newly-built condos have weakened further, while resale prices on existing apartments have been mostly flat to down slightly. The inventory of unsold homes has continued to climb but is still fairly low by historical standards. Housing markets in the rest of the metro area followed a similar pattern. A local housing expert noted that potential buyers have been hesitant. At the high end of the market, an oversupply and concern about the curtailed federal tax deductibility of homeowner expenses have weighed on the market. At the lower end, some potential buyers have become more inclined to rent than to buy.

Residential rents across the District have picked up somewhat since the last report but remain roughly on par with a year earlier. In New York City, the prevalence of landlord concessions appears to have receded somewhat and rents have risen modestly, as rental vacancy rates have remained low. The recent withdrawal of Amazon’s planned expansion in northwestern Queens has reportedly had little effect on the area’s housing market.

Commercial real estate markets have been mixed but little changed overall. Both office availability rates and asking rents have remained steady, on balance. Retail markets have continued to soften, as vacancies have continued to rise. Industrial markets, on the other hand, have remained firm: While availability rates have leveled off at low levels, rents have continued to climb briskly—mainly in the New York City metropolitan region.

New multi-family construction starts remained sluggish, though a substantial volume of residential development remains under construction--particularly in New York City. New office construction starts picked up in New York City but remained sluggish elsewhere.

Banking and Finance
Small to medium-sized banks in the District reported lower demand for consumer loans, residential mortgages, and commercial mortgages, but slightly higher demand for commercial and industrial (C&I) loans. Refinancing activity was reported to be little changed. Banks reported higher credit standards for commercial mortgages but unchanged standards across other categories. Higher loan spreads were reported on residential mortgages, while spreads were steady for all other categories. Finally, banks reported increased delinquency rates on consumer and C&I loans but unchanged delinquency rates on residential and commercial mortgages.

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