April 15, 2015
Growth in the Second District's economy has slowed to a modest pace since the last report. Businesses report that selling prices remain mostly stable, while input costs rose moderately. Labor market conditions have improved slightly, on balance, in recent weeks, with scattered reports of increased wage pressures. Consumer spending has been a bit weaker, on balance, since the last report: both general merchandise retailers and auto dealers note that sales slumped in February, due largely to weather, but bounced back in March. Tourism activity has been mixed but a bit softer, on balance, while consumer confidence has slipped somewhat. Housing markets showed some signs on slowing; office markets have slackened, while the market for industrial space has continued to strengthen. Finally, banks report steady to stronger loan demand, continued narrowing in loan spreads, and lower delinquency rates across the board.
Consumer Spending
Retailers report that sales weakened substantially in February but rebounded in March. A major general merchandise chain indicates that same-store sales fell below 2014 levels in February but were well above a year ago in March. Similarly, a major retail contact in upstate New York indicates that sales weakened considerably in February but bounced back somewhat in March; a marked falloff in Canadian shoppers was attributed to the strong dollar. In both cases, the February weakness was attributed largely to harsh weather. Contacts report that selling prices have generally been stable, and that discounting remains widespread.
Auto dealers in both the Rochester and Buffalo areas report that new vehicle sales weakened substantially in February, due to unseasonably harsh winter weather, but bounced back in March. Used vehicle sales were mixed, with Buffalo-area dealers reporting weak sales but Rochester-area contacts describing sales as fairly sturdy. Auto dealers note that both wholesale and retail credit conditions remain in good shape.
Consumer confidence in the region weakened somewhat in February and was little changed in March; still, it remains near its multi-year high, set in January. Tourism activity has slowed somewhat in recent weeks. In February, hotel occupancy rates rose above 2014 levels in Niagara Falls (NY) but fell in Buffalo; occupancy rates and room rates in New York City were also down from a year earlier. Broadway theaters report that both attendance and revenues weakened in March and were down from a year earlier.
Construction and Real Estate
The District's housing markets have been a bit softer, on balance, since the last report. New York City's apartment rental market has been steady to slightly stronger in recent weeks: rents have continued to edge higher in Manhattan and Queens and are up moderately from a year earlier, while rents in Brooklyn have been flat. One Brooklyn real estate authority notes that, while rents have stabilized in more established areas, they continue to rise in the more peripheral neighborhoods. New York City's co-op and condo market was mixed in the first quarter: in Manhattan, prices declined modestly from the elevated levels of early 2014; but in Brooklyn and Queens, prices registered sturdy gains, driven by low and declining inventories. Sales activity was down from a year ago citywide but still fairly high. Once contact attributes some of the weakness at the high end of the market--especially new development in Manhattan--to the stronger dollar.
Housing markets in areas around New York City have been generally flat. Selling prices were flat to up slightly; one New Jersey contact partly attributes the sluggish recovery in housing to a persistently high backlog of foreclosed homes. Sales activity rose modestly in Westchester and Fairfield counties but remained sluggish in northern New Jersey, reportedly hampered by weather. Harsh weather was also blamed for weakness in the Buffalo-area housing market in the first quarter.
Commercial real estate markets across the District have been mixed, with some slackening in office markets but continued tightening in industrial markets. During the first quarter of the year, office availability rates rose in the Manhattan, Long Island, and Westchester-Fairfield markets; however, rates edged down across upstate New York and were unchanged (at a high level) in northern New Jersey. Office rents are flat to up modestly. New office construction has been robust in New York City but moribund across the rest of the District. Industrial availability rates, in contrast, have continued to trend down across most of the District, and rents have risen moderately; Long Island availability rate stabilized at a low level, with rents up 8 percent from a year ago.
Other Business Activity
Manufacturing firms report that activity weakened a bit in March, on balance. However, business contacts in most service industries report that business picked up in March, following a sluggish February. Manufacturing and service firms continue to report stable selling prices, though manufacturers note some increased pressure on input prices in recent weeks.
The labor market has been mixed in recent weeks, though there continue to be reports of increased wage pressures. Both manufacturers and service-sector firms report that they are expanding their workforce, on net, and plan to do so in the months ahead. One major New York City employment agency reports that hiring activity has picked up in recent weeks and that salaries are getting more of a lift than in recent years. This contact also notes that management consulting firms are hiring more--viewed as a good harbinger--and that IT workers are increasingly being hired by more traditional (non-technology) companies. Another major employment agency contact reports that job listings remain strong but has noticed a significant slowdown in the speed with which companies are making job offers.
Financial Developments
Small to medium sized banks in the District report steady demand for residential mortgage loans but increased demand for consumer loans, commercial mortgages, and commercial and industrial loans. Bankers continue to report that credit standards are unchanged across all loan categories. Contacts also report an ongoing decrease in spreads of loan rates over cost of funds across all loan categories--particularly in residential mortgages. Respondents report an increase in the average deposit rate. Finally, bankers note a decrease in delinquency rates across all loan categories, especially for residential mortgages.