September 3, 2014
The Second District's economy has continued to expand at a moderate pace since the last report. Prices of finished goods and services remain generally steady, while businesses continue to report moderate upward pressure on input prices. Labor market conditions continue to improve: Overall, business contacts report some pickup in hiring, and employment agencies describe the job market as strengthening. Service sector firms report that growth has picked up slightly since the last report, while manufacturers say that growth has moderated somewhat. General merchandise retailers report that sales were mixed in July but improved in early August; auto dealers report that sales were mixed but generally steady. Tourism activity has continued to show strength since the last report. Home sales and rental markets were steady to stronger, with inventories still low but rising. Commercial real estate markets have been mixed. Finally, banks report that household loan demand has leveled off but that demand from commercial borrowers continues to grow; they also note little change in credit standards and ongoing declines in delinquency rates across the board.
Consumer Spending
General merchandise retailers say that sales were roughly on plan since the last report with some improvement noted in recent weeks; selling prices have remained steady overall. One major retail chain indicates that sales improved moderately and were generally on plan in July and thus far in August. Retail contacts in upstate New York note that sales were generally flat in June and July but have picked up in early August, with the pickup attributed to strong back-to-school demand. Most retail contacts portray inventories as being in good shape, though one upstate mall characterizes them as on the high side. Prices are mostly described as steady.
Auto dealers across upstate New York report mixed results. Buffalo area dealers report that new vehicle sales increased in July but that sales of used vehicles remained soft. Conversely, after a strong spring season, Rochester area dealers say that new vehicle sales weakened in July and remained flat in early August. Auto dealers note that both wholesale and retail credit conditions remain in good shape.
Tourism activity has strengthened further since the last report. Business at Broadway theaters continued to show strength in July and the first half of August, with both attendance and overall revenues up roughly 13 percent from a year earlier. Hotel occupancy rates remained elevated in New York City and have picked up across much of upstate New York--in particular, in the Buffalo, Rochester and Albany areas--in July. Consumer confidence in the region was mixed again in July: The Conference Board's survey showed confidence rising to the highest level seen so far this year in the Middle Atlantic region (NY, NJ, PA), whereas Siena College's survey of New York residents shows confidence retreating, after climbing for three straight months.
Construction and Real Estate
The District's housing markets have been mixed but a bit firmer, on balance, since the last report. New York City's rental market has continued to strengthen, with rents rising at a moderately brisk rate, while the city's co-op and condo market has been generally stable. Across much of the District, including New York City, home resale activity has receded somewhat, while the inventory of available homes has risen slightly but remains low; selling prices are flat to up slightly. One homebuilding contact in northern New Jersey notes that the tone of the market is fairly positive for multi-family (mostly rental) construction, and that developers are building more ahead of demand. In contrast, single-family developers are reluctant to build any significant inventories of new homes. A contact in New York City notes that there is a good deal of new development in the pipeline and expects sales and closings to pick up in the months ahead; this contact also sees a good deal of new construction in the planning stage--largely condos in Manhattan and rental apartments in Brooklyn and Queens.
Commercial real estate markets have been mixed since mid-year. Manhattan's office market has continued to tighten, with availability rates slipping to a 5-1/2 year low and rents up 5 percent to 10 percent from a year ago. Across the rest of the region, however, office markets have been stable to slightly softer: in Long Island availability rates have held steady near a 7-year low, whereas in northern New Jersey, Westchester and Fairfield counties, and across upstate New York they have been steady at high levels. Office rents have been steady to up slightly. Industrial markets have been steady across most of the District, though availability rates have edged down in northern New Jersey, and asking rents have risen rapidly in Long Island and particularly in Brooklyn and Queens. Finally, Manhattan's retail vacancy rate has edged up while rents remain flat; in Long Island and northern New Jersey, however, the market for retail space has shown signs of firming slightly.
Other Business Activity
Manufacturing firms in the District report some moderation in growth from the brisk pace noted in the last report, whereas service-sector firms indicate a pickup in growth. Manufacturers express increasingly widespread optimism about the near-term business outlook. Service-sector firms report that increases in input costs remain fairly widespread; among manufacturers, such price pressures increased slightly but remain fairly subdued. The vast majority of both manufacturing and service-sector contacts continue to report that selling prices remain flat.
The labor market has shown further signs of strengthening since the last report. Manufacturers continue to add workers, on balance, and considerably more plan to increase than to reduce staffing levels in the months ahead. A growing proportion of service firms say they are hiring, though there has been little change in the proportion that say they are raising wages. One major New York City employment agency reports that hiring activity has continued to improve gradually, while another reports more widespread strengthening and notes increased wage pressures across the board. A growing proportion of workers are said to be switching jobs for increased pay. One trucking industry analyst reports that the industry is doing well but cites a chronic shortage of drivers and notes that this has intensified somewhat in recent months.
Financial Developments
Since the last report, small to medium-sized banks across the District report increased demand for commercial mortgages and commercial & industrial loans, but they report that demand for consumer loans and residential mortgages has leveled off. Bankers also report that demand for refinancing continues to decline. Credit standards are reported to have tightened for commercial & industrial loans, but remain unchanged across other loan categories. Respondents report no change in spreads of loan rates over cost of funds for their residential mortgage business and a narrowing of spreads for all other loan categories--particularly commercial mortgages. Finally, bankers report a further decrease in delinquency rates in all loan categories, but most notably for consumer loans.