October 14, 2015
Economic growth in the Second District has continued at a modest pace since the last report. Selling prices remain generally stable, while service-sector firms continue to note upward pressure on input prices and wages. Labor markets have shown further signs of tightening since the last report. Consumer spending has been mixed but up moderately, on balance, while tourism has remained weak. Manufacturers report further softening in activity. Housing markets continued to improve, while commercial real estate markets were mostly stronger. Multi-family residential construction has been increasingly robust, whereas commercial construction has slowed. Finally, banks report that loan demand has leveled off, while delinquency rates have continued to improve.
Consumer Spending
Retailers report mixed results for August and September. One major retail chain indicates that sales in the region came in below plan in both months, slipping below comparable 2014 levels, whereas another chain notes that sales picked up in late August and remained above plan through September. Retailers in upstate New York report that sales were sturdy in August but slowed a bit in September. A number of contacts note that the strong dollar has adversely affected sales, particularly in areas frequented by foreign shoppers. Still, retail inventories are generally said to be at satisfactory levels, and selling prices are reported to be generally steady.
Auto dealers in upstate New York indicate that new vehicle sales have been steady to stronger since the last report. Buffalo-area dealers indicate that sales were little changed in August but picked up noticeably in September, while Rochester-area dealers describe volume as steady in both months. Used vehicle sales are reported to have strengthened somewhat. Wholesale and retail credit conditions continue to be described as in good shape.
Tourism activity has shown further signs of weakening--particularly in New York City, where revenues at both hotels and Broadway theatres are reported to have slipped below comparable 2014 levels. Retail contacts also note particular weakness in tourism-related sales. Separately, the Conference Board's September survey shows consumer confidence in the region (NY, NJ, Pa), as well as in New York State, surging to a multi-year high.
Construction and Real Estate
The District's housing markets have continued to strengthen modestly since the last report, while multi-family residential construction remains brisk. The home resale market in western New York State has been particularly strong across the board, with a combination of limited supply and strong demand driving up prices and making bidding wars commonplace. New York City's co-op and condo market has also been fairly robust, with sales volume fairly strong, despite low inventories; the average time properties are on the market is reported to be at record low, and many transactions have been above the initial listing price. Compared with a year ago, apartment sales prices are up substantially in Brooklyn and Queens, while they are up moderately in Manhattan. Across other parts of the District--Long Island, northern New Jersey, and the Lower Hudson Valley--home prices are generally stable or rising modestly.
Residential rental markets generally remain on an upward trend. Rents are reported to be running moderately ahead of a year ago in Manhattan and Queens, and are up modestly across northern New Jersey and most of upstate New York. Residential rents are up more substantially across prime areas of Brooklyn.
Commercial real estate markets across the District were mostly stronger. Office availability rates edged down throughout the District in the third quarter, while asking rents for office space rose substantially in New York City, Long Island, and across parts of upstate New York and more modestly in northern New Jersey and Westchester and Fairfield counties. The market for industrial space also continued to tighten. In contrast, vacancy rates for retail space climbed to multi-year highs across New York City, Long Island and northern New Jersey.
Commercial construction activity has retreated somewhat but remains at a high level; however, considerably fewer new projects have been started in recent months. On the residential side, while single-family residential construction activity remains subdued, multi-family construction has been increasingly robust--particularly in New York City. One construction industry contact in New Jersey reports that new residential development has been particularly robust in areas adjacent to New York City.
Other Business Activity
The labor market has shown further signs of strengthening in recent weeks. Business contacts in most industries report they are adding workers, on net, and plan on doing so in the months ahead. One noteworthy exception is manufacturing, where more contacts say they have reduced than added to their workforce. Two major New York City employment agencies report that hiring activity has been particularly brisk for this time of year, while a major agency in upstate New York notes that hiring activity remains steady at a moderate pace. A growing number of job candidates are reported to be getting multiple offers, and this is putting more upward pressure on starting salaries--and not only for more skilled workers. Employment agencies note particularly strong demand for HR workers, especially for recruiters and benefits administrators. IT workers and truck drivers are reported to be in exceptionally short supply.
Manufacturers report that selling prices are flat to declining modestly, while input prices remain generally stable. Service firms report stable selling prices but continued upward pressure on input prices as well as wages. Insofar as general business conditions go, service-sector firms continue to report modestly expanding activity, and most remain generally optimistic about the near-term outlook. In contrast, manufacturers report that business activity has weakened noticeably; contacts remain somewhat optimistic about the near-term outlook but less so than earlier in the year.
Financial Developments
Small to medium sized banks in the District report increased demand for commercial mortgages but little change in demand for other types of loans. Demand for refinancing is reported to have weakened for the first time this year. Bankers report that credit standards were unchanged across all loan categories. Respondents report a decrease in spreads of loan rates over cost of funds across all loan categories, with the exception of consumer loans, for which bankers reported no change. The decrease in spreads was most prevalent for commercial mortgages. Finally, banks report an ongoing decrease in delinquency rates across all loan categories, except for consumer loans, where delinquency rates were reported to have leveled off.