Beige Book Report: New York
October 19, 2016
Economic activity in the Second District has been flat since the last report, while labor markets have remained tight. Contacts note little change in selling prices, as well as in price and wage pressures; but a growing number of contacts expect to raise selling prices in the months ahead. Both manufacturers and service-sector contacts indicate that business activity has been steady to somewhat weaker, on balance. Consumer spending has remained sluggish, while tourism activity has been mixed but generally weaker. Residential real estate markets continued to be mixed with further weakening at the high end in both sales and rental markets. In contrast, commercial real estate markets have shown signs of strengthening. Residential construction has been sluggish--especially for single-family homes--but there has been some pickup in office construction and industrial construction has remained brisk. Banks report further strengthening in loan demand and continued improvement in delinquency rates.
Consumer Spending
Retail merchandise sales were mixed but generally sluggish in September. Two major chains report that sales weakened in September and were below plan and down moderately from a year earlier in both New York City and the rest of the District. One contact suggests that unseasonably warm weather has delayed sales of seasonal merchandise. In contrast, retailers in upstate New York characterize sales as generally stable and up modestly from comparable 2015 levels, citing the warm weather as a positive factor. Prices are reported to be little changed, as is the degree of promotion and discounting. Inventories are said to be at satisfactory levels, with some retailers noting that the trend towards more on-line sales has enabled them to hold thinner inventories.
Auto dealers in upstate New York report that new vehicle sales remained soft in September and were down from a year earlier. One contact attributes the weakness to a reduction in manufacturers' incentives and surmises that the market has reached a natural plateau. However, some dealers have seen a pickup in used cars sales, which had been sluggish for most of this year. Inventories of new vehicles are reported to be up a bit, with the slowdown in sales. Retail and wholesale credit conditions generally remain favorable.
Tourism activity has been mixed but generally weaker since the last report. Hotels report that occupancy rates were fairly high in September but that revenues were down sharply from a year earlier. However, attendance at Broadway theatres picked up in September and was up moderately from a year ago; with average ticket prices essentially flat, overall revenues were also up moderately from a year earlier. Consumer confidence in the Middle Atlantic states (NY, NJ, PA) surged in September, reaching its highest level in well over a year.
Construction and Real Estate
The District's housing markets have been mixed since the last report, with continued weakness at the high end. New York City's rental market has remained essentially flat in both Manhattan and the outer boroughs: rents on larger units have edged down further and landlord concessions (e.g., free month's rent, waived fees) have become increasingly widespread; rents on smaller units have been essentially flat in recent months but still up slightly from a year earlier. The rental vacancy rate across the city edged up to a seven-year high. In areas of New Jersey close to New York City, however, rental markets remain fairly robust and rents continue to climb. Rental markets across upstate New York have leveled off overall, as vacancy rates have risen moderately.
New York City's co-op and condo resale market has continued to be stable, overall. Sales activity has declined but remains fairly high, and prices have been steady on balance--rising modestly for smaller apartments but continuing to decline for larger units. Bidding wars have become somewhat less common than earlier in the year. Elsewhere across the District, there have been scattered signs of improvement. Realtors in parts of upstate New York State characterize the housing market as vibrant, with inventories tight, prices rising, and sales activity robust. However, home prices remain generally flat in northern New Jersey, and sales volume has been lackluster, aside from pockets of strength in areas close to New York City.
Commercial real estate markets have shown signs of tightening. Availability rates have declined in northern New Jersey, the Lower Hudson Valley and across most of upstate New York, while rents have risen. In New York City, availability rates have edged up, but this likely reflects a sizable amount of new office space that has come on line.
New multi-family development has slowed further in most of the District, though there continues to be a fair amount of construction in progress--particularly in and around New York City. Single-family construction remains sluggish across the District. Office construction has picked up somewhat in New York City's outer boroughs and continues to be fairly strong in Manhattan as well but has remained sluggish elsewhere. However, there continues to be a good deal of office construction in progress across New York City and a moderate amount in northern New Jersey. Industrial construction has been increasingly robust--particularly in northern New Jersey, where warehouse space is in strong demand.
Other Business Activity
Contacts in both the manufacturing and service sectors report that business activity has been steady to weaker since the last report, and service-sector businesses indicate less optimism about the near-term outlook. Both manufacturing and service-sector contacts continue to report steady to modestly increasing selling prices; however, a growing proportion of contacts in both sectors plan to raise prices in the months ahead. Input price pressures are little changed since the last report.
The labor remains tight and hiring continues to be fairly robust. Service firms report that they are hiring, on net, while manufacturers report that they are reducing staffing levels modestly. Contacts in both service and manufacturing sectors plan to increase headcounts somewhat, on balance, in the months ahead. A major New York City employment agency reports that hiring activity has remained brisk, with strong labor demand coming from a broad array of industry sectors. Most of the job openings, however, require some specific skill sets. This contact also notes that employers, faced with a shortage of skilled job candidates, are increasingly willing to negotiate on compensation. Overall, business contacts indicate moderate wage growth and note that wage pressures have not changed.
Financial Developments
Small to medium sized banks in the District report steady demand for commercial & industrial loans but strengthening demand in all other loan categories. Banks indicate that credit standards remained unchanged across all loan categories. Contacts report narrowing spreads of loan rates over cost of funds across all loan categories--particularly for commercial mortgages. Respondents also note increases in average deposit rates. Bankers report lower delinquency rates across all loan categories except commercial & industrial loans, where little change is indicated. The most widespread declines in delinquencies were on residential mortgages.