Beige Book Report: New York
November 30, 2016
Economic activity in the Second District has remained flat since the last report, while labor markets have remained tight. Contacts continue to report little change in selling prices, as well as in price and wage pressures, though a rising number of service-sector contacts anticipate wage hikes in the months ahead. Manufacturers note a modest pickup in business activity, while service firms continue to report steady to softer activity. Both consumer spending and tourism have remained sluggish since the last report. Residential and commercial real estate markets have been mixed but steady overall. Residential construction has held steady, while office construction has picked up. Banks report strengthening loan demand, continued improvement in delinquency rates, and somewhat tighter credit standards on commercial borrowers.
Consumer Spending
Retail merchandise sales remained soft in October but showed some signs of picking up in early November. Two major retail chains report that sales in the region remained sluggish and below plan in October, though both note a modest pickup in the first half of November. Similarly, retailers in upstate New York note that sales were essentially flat in October but improved somewhat in early November. Prices throughout the district are reported to be steady to up slightly, while discounting has remained about the same. Inventories are described as being in good shape.
Auto dealers in upstate New York report that new vehicle sales have been steady to somewhat weaker in October and into early November, while sales of used vehicles were flat to up modestly. One contact attributes some of the recent weakness to manufacturers having scaled back incentives, noting that production has been scaled back. Inventories of new vehicles are reported to have risen moderately due to slowing sales activity. Retail and wholesale credit conditions remain favorable.
Tourism activity has been mostly steady since the last report. Attendance at Broadway theatres slumped in October and early November and was below comparable 2015 levels; however, revenues have increased and are on par with a year earlier, reflecting higher average ticket prices. After rising in September, consumer confidence in the Middle Atlantic states (NY, NJ, PA) retreated in October, though it remains at reasonably high level.
Construction and Real Estate
The District's housing markets have been mixed since the last report, with the high end continuing to underperform. New York City's rental market has been mostly steady, except at the high end, where the inventory has risen and rents have drifted down. Landlord concessions have grown increasingly prevalent, especially in Manhattan and Brooklyn. In contrast, rental markets in northern New Jersey and across upstate New York have strengthened further: vacancy rates are at or near multi-year lows, while rents continue to climb and are up roughly 4 percent from a year earlier.
New York City's co-op and condo resale market has been mixed. In Manhattan, resale inventories have risen, while prices have declined at the high end of the market but remained steady for more moderately priced units; bidding wars have become noticeably less prevalent. Resale markets in Brooklyn and Queens have been more resilient: prices have continued to edge up, sales activity has been strong, and inventories have declined. Similarly, realtors in parts of upstate New York State report that the home resale market has remained robust; tight inventories have pushed up prices, and sales activity is described as fairly brisk for this time of year.
Commercial real estate markets have been mixed in recent weeks. Since the beginning of October, office availability rates have risen in Manhattan, Long Island, Westchester, and Fairfield counties, while they have held steady in northern New Jersey and across upstate New York. Industrial real estate markets, on the other hand, have strengthened throughout the District, with rents rising rapidly, and availability rates slipping to multi-year lows across New York State, and holding steady at multi-year lows in northern New Jersey.
Permits for single-family construction have risen modestly in New York State but declined in New Jersey; they remain at subdued levels in both states. Ongoing multi-family construction activity has been steady at a fairly high level, though there has been very little new development in recent weeks. Office construction starts have picked up across most of the District.
Other Business Activity
Manufacturing contacts report that business activity and new orders have picked up modestly in recent weeks, while inventories have fallen broadly. Service-sector businesses, on the other hand, continue to report flat to declining business. Still, both manufacturing and service sector contacts generally indicate that they are fairly optimistic about the near term outlook. Business contacts report little change in selling prices. Service firms report that input price pressures remain fairly widespread, while manufacturing contacts report only modest input price pressures.
The labor market has remained tight. A number of business contacts maintain that they are having trouble both finding and retaining skilled workers. One New York City employment agency reports that hiring activity has slowed somewhat, while another indicates that hiring has been fairly strong for this time of year. Both report modest growth in wages and salaries. An upstate New York employment agency reports steady demand for labor and rising wages for some categories of jobs. Retail contacts report that they plan to hire somewhat more holiday-season workers than in 2015. Manufacturers indicate that they have continued to reduce headcounts, on balance, though they plan to increase employment in the months ahead. A growing proportion of service-sector contacts anticipate wage hikes in the months ahead.
Financial Developments
Contacts at small to medium-sized banks in the District report stronger demand for commercial mortgages and commercial & industrial (C&I) loans but little change in demand for consumer loans and residential mortgages. Credit standards were unchanged for consumer loans and residential mortgages, but bankers report some tightening of standards for commercial mortgages and C&I loans. Bankers report narrower spreads of loan rates over cost of funds across all loan categories. The decrease in spreads was most notable for residential mortgages. Respondents also report an increase in the average deposit rate. Finally, bankers report lower delinquency rates for consumer loans and C&I loans, and no change in delinquency rates for other loan categories.