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Beige Book Report: New York

September 4, 2019

Summary of Economic Activity
The Second District economy continued to expand at a modest pace in the latest reporting period. The labor market remained very tight, as employment levels were flat, and wage growth picked up slightly. Input price pressures have remained subdued, while selling prices have been flat to up moderately. Manufacturing activity was steady to slightly higher, while trade and distribution activity was mixed. However, most service sectors saw steady to modestly growing activity. Consumer spending was up modestly, largely reflecting a pickup in auto sales. Tourism has picked up noticeably. Housing markets have been mixed, though the residential rental market has firmed throughout the District. Commercial real estate markets have been steady to softer, and new commercial construction has tapered off somewhat. Finally, banks reported a rebound in loan demand, though the financial sector overall showed signs of softening.

Employment and Wages 
The labor market has remained very tight across the District. Contacts have continued to report trouble finding qualified workers in a wide variety of roles, including engineers, teachers, construction workers, truck drivers, and retail clerks. An employment agency noted that one factor holding back hiring has been a wide gap between job candidates' salary demands and employers' offers.

Businesses in most industries continued to report little or no net hiring. Contacts in the manufacturing, transportation, information, finance, and professional & business services sectors reported flat to slightly declining staffing levels, while businesses in education & health, real estate, and leisure & hospitality reported modest increases in headcounts. The one industry noting fairly brisk net hiring has been wholesale trade. Looking ahead to the next six months, though, businesses in manufacturing and most service sectors still plan on adding to staff.

While businesses generally report that wage growth has remained moderate, there have been scattered signs of a pickup. A large New York City employment agency notes somewhat more upward pressure on salaries, and a finance sector contact in upstate New York notes that they recently upped pay scales for entry-level workers in response to the tight labor market.

Prices 
Overall, businesses indicated that both input costs and selling prices continued to rise at a modest pace, though there have been some divergent trends across industries. Manufacturers report that their input prices have continued to rise at a modest pace but that their selling prices have flattened out. Looking ahead, an increasingly large share of manufacturers said that they expect their input costs to rise faster than the prices they receive. Contacts in the service sector, on the other hand, reported ongoing growth in their selling prices—particularly in the transportation and education & health industries—along with continued moderate growth in input prices.

Retailers generally indicated that selling prices have been mostly flat to down slightly, reflecting somewhat steeper discounting. Contacts in both auto sales and retail indicated that trade tensions have not yet had a noticeable effect on prices. In contrast, a major retail chain noted that they had raised prices on furniture and other big-ticket items, but that they were likely to reverse those hikes, as consumers were not responding well.

Consumer Spending
Retail sales remained steady in recent weeks and flat to up slightly from a year earlier. A major retailer noted some slowing in sales in early August (partly reflecting tariff-driven price hikes), but the advent of back-to-school season has mitigated that decline. An upstate New York mall reported continued modest growth in sales activity and shopper traffic. In general, inventories were said to be near desired levels, helped by increased discounting over the summer.

Sales of both new and used vehicles picked up noticeably, according to dealers in upstate New York. Still, inventories of new vehicles remained above desired levels. Dealers indicated that service departments have remained busy and characterized consumer credit conditions as being in good shape.

Manufacturing and Distribution
The manufacturing and distribution sectors have improved somewhat since the last report. Manufacturers reported that overall activity and new orders have been steady to slightly higher in the latest reporting period, after a pullback during the late spring. Wholesale distributors reported that growth rebounded to a fairly brisk pace. However, transportation firms noted a moderate drop-off in activity in recent weeks.

While manufacturers remain fairly positive about the near-term outlook, wholesale distributors and especially transportation firms have become noticeably less optimistic. Contacts in these sectors, as well as in manufacturing, have expressed ongoing concern about tariffs and trade tensions and about uncertainty going forward.

Services
Service-sector businesses reported that activity has been mixed but, on balance, a bit stronger since the last report. Contacts in leisure & hospitality noted a substantial pickup in business. An authority on New York City's tourism industry reported that visitations picked up and were strong in August but that visitors were spending less, on average. Broadway theaters reported that attendance slipped somewhat in July and early August and was down modestly from a year ago. Hotel occupancy rates were solid, though average room rates were down due to more people staying at budget hotels.

Other service industries have not been as robust. Businesses engaged in professional & business services and education & health reported modest growth in activity, while finance and real estate firms generally reported flat activity. Contacts in the information sector reported some pullback in activity. Service firms, in general, were fairly optimistic about the near-term outlook, except for those in the finance sector.

Real Estate and Construction
Housing markets across the District have firmed somewhat since the last report, with the rental market strengthening but the sales market mixed. The market for existing homes in upstate New York has continued to strengthen, as persistently low inventories of unsold homes has continued to boost prices and contributed to bidding wars. In New York City, by contrast, the inventory of unsold co-ops and condos has hovered at a 7-year high, though not excessively high by historical standards. Apartment sales prices have drifted down, and transactions activity has retreated from brisk second-quarter levels. Housing markets in the areas surrounding New York City have been mixed.

Residential rents have accelerated somewhat across the District and are now up 3-6 percent from a year earlier. Rental vacancy rates have declined further, particularly in New York City, and landlord concessions have continued to recede from the high levels of recent years.

Commercial real estate markets across the District have been steady to softer since the last report. Office rents have been mostly flat, while availability rates have been steady to slightly higher. Industrial markets have been mixed, as rents have continued to rise moderately, while availability rates have edged up further. The market for retail space has been particularly soft, with availability rates climbing to multi-year highs and rents declining modestly.

New multi-family construction starts have tapered off a bit, but ongoing construction has remained fairly brisk across the New York City area. New office construction has been steady, while new industrial construction has slowed somewhat. There has been quite extensive new hotel development in New York City's outer boroughs.

Banking and Finance
Bankers reported higher demand for consumer loans, residential mortgages, and commercial mortgages, all of which had declined in the previous reporting period. Refinancing activity rose. Credit standards for consumer loans, residential mortgages, and C&I loans were unchanged, but tightening standards were reported for commercial mortgages. Bankers reported narrowing loan spreads across all categories. Finally, delinquency rates were reported to be stable across all categories.

For more information about District economic conditions visit: www.newyorkfed.org/regional-economy