July 13, 2016
The Second District's economy has picked up, growing modestly since the last report, and labor markets remain tight. Contacts note continued moderate pressure on input prices and wages but little change in selling prices overall. Manufacturers report a modest rebound in activity, while service-sector businesses indicate a slight increase. Consumer spending was little changed, on balance, and tourism activity has remained sluggish. Residential real estate markets were mostly improved but weaker at the high end, while commercial real estate markets were steady to stronger. Residential construction has tapered off, whereas commercial construction has picked up. Banks report further strengthening in loan demand and continued improvement in delinquency rates.
Consumer Spending
Retail merchandise sales have picked up somewhat in recent weeks but remain at sluggish levels. Retail contacts generally note that sales were below plan in May but picked up somewhat in June and were little changed from a year earlier, but on or close to plan. In upstate New York, a mall contact reports that higher-priced retailers have been struggling, reflecting more value-driven consumers. Retailers report steady prices but somewhat more discounting than in recent months. Inventories, which had been described as somewhat high, are now back on target.
New vehicle sales are reported to have softened somewhat in May and June, though they are still said to be at fairly high levels. Inventories of new vehicles are reported to be mixed, largely reflecting availability of financing incentives on some models but not others. The used car market also remains soft, with both sales activity and prices drifting down in recent months. Retail and wholesale credit conditions generally remain favorable.
Tourism activity has been mixed but generally sluggish. Hotels across parts of upstate New York note weaker occupancy rates, while New York City hotels report that both occupancy and room rates are running below 2015 levels. Attendance at Broadway theatres has picked up somewhat since mid-May. However, average effective ticket prices are down somewhat relative to a year earlier, keeping overall revenues below comparable 2015 levels. Consumer confidence in the Middle Atlantic states (NY, NJ, PA) rose in May but retreated slightly in June.
Construction and Real Estate
The District's housing markets have been mixed since the last report, with widespread signs of weakness at the high end of the market. New York City's rental market has shown further signs of slackening: rents have been flat to down slightly in Manhattan, while they have continued to edge up in Brooklyn and Queens. In all these areas, rents on larger units have declined. Vacancy rates across the city, though still low, have moved up, and landlord concessions (e.g., free month's rent, waived fees) have reportedly grown more widespread.
New York City's co-op and condo resale market has strengthened somewhat--mainly in Brooklyn and Queens, where prices are up 8-10 percent or more from a year ago and sales volume has picked up as well. Manhattan resale prices are up roughly 5 percent from a year ago, with most of the rise on smaller apartments, while sales volume has receded from high levels. The inventory of resale units remains low, while the inventory of newly developed apartments for sale, mostly luxury, is reported to be high.
Elsewhere across the region, resale activity for single-family homes has picked up across New York State and in northern New Jersey. A real estate contact in the Buffalo area characterizes the local housing market as particularly robust and notes strong demand for downtown properties. There has also been a strong pickup in sales volume in suburbs around New York City, though prices have held steady. Residential construction has tapered off throughout most of the District, in both the multi-family and single-family sectors.
Commercial real estate markets have been stable to somewhat stronger through mid-year. Office availability rates edged up in Manhattan; despite a pickup in leasing activity, a large amount of space coming onto the market was not fully absorbed. Elsewhere, office availability rates were steady to down slightly; across upstate New York, they were at multi-year lows. New office construction has picked up in New York City but remains sluggish across the rest of the District. Industrial real estate markets strengthened further--particularly across the New York City metro region--with asking rents continuing to climb briskly and vacancy rates falling to their lowest levels since before the recession. New factory and warehouse construction picked up in the second quarter.
Other Business Activity
Contacts across the District generally report modest improvement in business conditions. Manufacturers report a small rebound in activity, while service-sector contacts report that business activity has increased slightly. Both manufacturing and service-sector contacts continue to report little change in selling prices, on balance, but moderate upward cost pressures.
The labor market has remained tight since the last report, and hiring activity has been fairly brisk for this time of the year. Manufacturers continue to report little change in staffing levels and do not expect much hiring in the months ahead. In contrast, service-sector businesses report moderately increasing employment and expect to ramp up staffing this year. Two major New York City employment agencies and one upstate agency report that demand for workers has been steady and fairly strong, while wage pressures have intensified, at least in some areas of work. One contact notes an uptick in demand for administrative and support staff. The telecom strike, which had idled approximately 15,000 workers in the District for about six weeks, ended in late May.
Financial Developments
Small to medium-sized banks across the District report strengthening demand for both residential and commercial mortgages but little change in demand for consumer and commercial & industrial loans. Bankers indicate that credit standards were unchanged across all loan categories. Banks report that spreads of loan rates over cost of funds were little changed for consumer loans but narrowed across all other loan categories--particularly commercial mortgages. Delinquency rates are reported to have eased further across all loan categories but to a lesser degree than in the last report.