December 3, 2014
Growth in the Second District's economy has picked up to a moderate pace since the previous report. Businesses report that cost pressures have abated somewhat, while selling prices are steady to up slightly. Service sector contacts indicate that business has picked up further since the last report, and manufacturers report modest improvement. Labor market conditions have continued to strengthen in recent weeks. General merchandise retailers report that sales have continued to trend up moderately, but auto dealers report that sales softened somewhat. Tourism activity has continued to show strength. Housing markets have shown signs of softening since the last report. Office markets have been generally steady, though the market for industrial space has strengthened. Finally, banks report increased demand for commercial mortgages, narrowing loan spreads for all types of loans, and continued declines in delinquency rates.
Consumer Spending
General merchandise retailers say that sales have continued to trend up, running moderately ahead of 2013 levels. Sales came in slightly below plan in October--restrained by unseasonably warm weather--but slightly ahead of plan in early November. The snowstorm that hit large parts of metropolitan Buffalo in mid-November shut down many retailers and disrupted supplies, but the overall effect on sales remains to be seen. The pricing environment is described as more promotional than last year. Retailers are building inventories in advance of the upcoming holiday season.
Reports from auto dealers across upstate New York indicate that sales were flat to down somewhat since the last report, even before the winter storm. Rochester-area dealers continue to characterize new vehicle sales as essentially flat in October and early November. However, Buffalo-area dealers report that new vehicle sales weakened in October and November. The used-car market was also mixed, with Buffalo-area dealers describing sales as soft but Rochester-area dealers characterizing them as improving. Auto dealers in both areas note that both wholesale and retail credit conditions remain in good shape.
Consumer confidence in the region rebounded strongly in October: The Conference Board's survey showed confidence rebounding to its highest level in more than a year in both New York State and the broader Middle Atlantic region (NY, NJ, PA). Tourism activity has been mixed but generally steady at a high level. Broadway theaters report that attendance and revenues continue to run moderately ahead of comparable 2013 levels.
Construction and Real Estate
The District's housing markets have taken on a somewhat softer tone in recent weeks. New York City's residential rental market has shown signs of softening: Rents in Manhattan and Brooklyn are reported to be steady to down slightly from a year ago, though they continue to rise modestly in Queens. Overall, New York City's co-op and condo market showed continued strength in October and early November--sales activity was down modestly from a year earlier but was still described as brisk, and lean inventories and strong demand continued to nudge up prices, which are reported to be running about 5 percent higher than a year ago. Single-family markets in Long Island and Staten Island--as well as in northern New Jersey, where there remains a large overhang of distressed properties--have lagged somewhat. The Buffalo-area market is characterized as having shifted from a seller's market to one that is more balanced, with sales activity leveling off and inventories continuing to build. Across New York State more broadly, the median selling price for single-family homes has edged down in recent months and was down slightly in October relative to a year earlier. New single-family construction activity has been sluggish, while multi-family construction has been robust.
Commercial real estate markets have generally remained steady thus far in the fourth quarter. In Manhattan, office availability rates edged down to a six-year low, while asking rents leveled off and are up about 2 percent since the beginning of the year. Elsewhere around the New York City metropolitan region, office availability rates and asking rents were generally flat, except in northern New Jersey, where rents were up slightly. Office markets were also stable across most of upstate New York, except for metropolitan Buffalo, where the office availability rate has climbed to a multi-year high. Although a number of major office developments are under construction in New York City, new starts for office construction remain fairly depressed across the District. The market for industrial space has been a bit more robust: Asking rents are up from a year ago throughout the region, while availability rates have fallen to multi-year lows in and around New York City and have edged down in upstate New York. New starts for industrial construction have increased in recent months and are up from a year ago.
Other Business Activity
Service-sector firms across the District report increasingly widespread growth in business activity, though manufacturing firms report that activity has expanded at a subdued pace. Nevertheless, contacts in both sectors express increasingly widespread optimism about the near-term outlook. Manufacturers generally report that selling prices remain flat, while service firms report modest increases; contacts in both sectors note that input price pressures overall have abated since the last report.
The labor market has continued to strengthen since the last report, with some reports of increased wage pressures. One employment agency contact reports that the labor market seems to be doing well but notes that it is difficult to gauge in light of the slowdown in permanent hiring that usually occurs before the holiday season. This contact also notes that employers are becoming more flexible on salaries and is optimistic about the outlook for 2015. Another major employment agency in New York City describes the job market as exceptionally strong and notes that qualified candidates are getting multiple offers; as a result, employers must often be willing to negotiate on pay and act quickly to fill job openings. In particular, financial firms are reported to be hiring more workers. One employment industry contact construes that retailers are hiring more seasonal help than last year, though a major retail chain indicates that it plans to hire about the same amount of seasonal help as in 2013. More generally, considerably more business contacts now say they plan to expand than reduce staffing levels in the year ahead.
Financial Developments
Small- to medium-sized banks across the District report increased demand for commercial mortgages but steady demand for other categories of loans. Bankers report little change in demand for refinancing. Credit standards continue to be reported as little changed across all loan categories. Respondents indicate that spreads of loan rates over cost of funds have declined across all loan categories, with the decrease most prevalent in commercial mortgages. Finally, bankers report ongoing decreases in delinquency rates across all loan categories.