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Beige Book Report: New York

October 16, 2019

Summary of Economic Activity
Growth in the Second District economy was subdued 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 moderate, while selling prices have risen modestly. Manufacturing activity was up marginally, and transportation business rebounded, while business was reported to be weaker in most service industries. Business contacts generally expressed considerably less optimism about the near-term outlook. Consumer spending was mixed, with strength in auto sales but weakness in other areas. Tourism has remained fairly robust. Housing markets have been softer, on balance, though the residential rental market has continued to firm. Commercial real estate markets have been steady to softer, and new commercial construction has tapered off somewhat. Finally, banks reported a pickup in loan demand from the household sector, though the financial sector overall showed further signs of weakening.

Employment and Wages
The labor market has remained stable and very tight across the District, but hiring has been subdued. Business contacts have continued to report trouble finding workers to fill a wide range of jobs such as construction contractors, truck drivers, auto mechanics, IT professionals, accountants, retail clerks, and nursing home attendants. A major New York City employment agency noted that almost all job candidates are merely jumping from other jobs. However, an upstate contact maintains that there has been a decrease in job-hopping.

Businesses overall continued to report little change in staffing levels. Contacts in real estate, education & health, and leisure & hospitality reported continued modest net hiring, while those in manufacturing, wholesale trade, transportation, and information reported modest declines in employment, on balance. Looking ahead to the next six months, businesses in manufacturing and most service sectors still plan on adding to staff; however, wholesale trade and information businesses anticipate modest declines in employment.

While businesses generally report that wage growth has remained moderate, there has been more widespread escalation in some lower-wage industries such as retail trade and leisure & hospitality. A large New York City employment agency notes that finance-sector firms are largely holding the line on salary increases, and there is a wide gap between salary offers and job-seekers' demands.

Businesses in most sectors indicated continued moderate increases in input costs and modest growth in selling prices. However, retailers have been reporting increasingly widespread hikes in the prices they pay, and, to a somewhat lesser extent, in the prices they charge. One contact at a major chain noted that tariffs were raising costs, particularly on home goods, but that consumers were resistant to price increases on such merchandise. Contacts in the leisure & hospitality sector, however, have held prices steady and, in some cases, lowered prices. For example, rates on New York City hotel rooms and Broadway theater tickets have receded.

Looking ahead, contacts in retail, wholesale, transportation, and manufacturing expressed a greater inclination to raise prices than others. Manufacturers and wholesalers anticipated the most widespread hikes in prices paid.

Consumer Spending
Retail sales have softened in recent weeks and were mostly little changed from a year earlier. A major retail chain noted that sales were down and somewhat below plan in September, partly reflecting weak demand for home goods. On a more positive note, some upstate New York retailers reported continued modest growth in both 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 have remained solid in recent weeks, according to dealers in upstate New York. Inventories of new vehicles remained somewhat above desired levels, but there is some concern about maintaining ample inventories (especially of parts) if the GM strike drags out. Dealers indicated that service departments have remained busy and characterized consumer credit conditions as being in good shape.

Manufacturing and Distribution
Manufacturers reported steady to slightly rising business activity. On the distribution side, transportation contacts indicated a modest pickup in activity, while wholesalers noted a significant drop-off in business.

Looking ahead, manufacturers and wholesalers have grown less optimistic about the near-term outlook, while transportation firms have become somewhat more optimistic. Contacts in all these sectors have expressed ongoing concern about tariffs and trade tensions and the related uncertainty going forward.

Businesses across almost all service industries reported some weakening in activity, on balance, since the last report. However, contacts in leisure & hospitality noted a leveling off in activity, following a substantial pickup in the last report. Broadway theaters reported that attendance and revenues picked up noticeably in the second half of September, following a sluggish spell in August and early September. Hotel occupancy remained solid across most of the District.

Other service industries reported softening activity—particularly those engaged in information services. Finance and real estate firms reported notable weakening, while professional & business and education & health service firms reported flat to modestly declining activity. Service firms, in general, have grown somewhat less optimistic about the near-term outlook.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, softer since the last report. The home sales market has weakened, especially in New York City, whereas rental markets have continued to strengthen moderately.

Prices of New York City condos and co-ops, which had been fairly steady through mid-year, slipped noticeably in the third quarter—most sharply in Manhattan. A local real estate expert noted that, while the city's "mansion tax" (effective July 1) has curtailed high end sales, the price declines have occurred across the spectrum. Moreover, the inventory of resale inventories has risen noticeably. In contrast, home prices in the suburbs north of New York City have continued to rise slightly, while sales volume and inventory levels have been steady.

The rental market has continued to trend stronger. Residential rents have continued to rise at a 3-5 percent pace, and the high end of the market has out-performed in recent months. Rental vacancy rates have declined further in New York City, and landlord concessions have continued to recede, though they remain fairly prevalent.

Commercial real estate markets across the District have generally been steady to slightly softer. Office rents have been mostly flat, while availability rates have been mixed but up slightly, on balance, while leasing activity has slowed. Industrial markets have shown some signs of softening: rents have continued to rise but at a slower pace, while availability rates have begun to trend up. The market for retail space has remained soft.

New multi-family construction starts have weakened noticeably across the New York City area, though there has been a modest pickup in upstate New York. Ongoing multi-family construction has remained fairly brisk. New office and industrial construction has weakened slightly across the District.

Banking and Finance
Small to medium sized banks in the District reported a rise in demand for consumer loans and residential mortgages but steady demand for commercial mortgages and C&I loans. Bankers reported higher refinancing activity. Banks reported unchanged credit standards and narrowing spreads across all loan categories. Contacts also reported widespread decreases in the average deposit rate. Finally, banks reported lower delinquency rates for consumer loans, but stable delinquencies across other categories.

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