January 18, 2017
Summary of Economic Activity
Economic activity in the Second District has held steady since the last report, while labor markets have remained fairly tight. There have been increasingly widespread increases in input costs and scattered signs of a pickup in selling prices. Manufacturers indicated that business rebounded following an autumn slump, while service-sector contacts reported steady to moderately expanding activity. Consumer spending has been mixed, even as consumer confidence climbed to a multi-year high. Housing markets have been mixed, with weakness continuing at the high end, and commercial real estate markets were steady to somewhat slacker. Residential construction was sluggish, while there has been some pickup in office and especially industrial construction. Banks reported that both loan demand and delinquency rates were steady to moderately improved.
Employment and Wages
The labor market has remained fairly tight, while hiring activity has been mixed. Businesses in most service industries reported that they have been hiring, on net, while manufacturers indicated that they are keeping headcounts steady. On balance, contacts said they plan to increase headcounts in the months ahead, particularly manufacturers. Contacts at employment agencies remained fairly upbeat about the job market, though they said it was hard to judge during this typically slow season. Still, an upstate New York agency noted that hiring remained fairly strong longer into December than usual and a New York City agency reported that hiring has picked up surprisingly early in January.
Contacts generally reported only a very modest pickup in wage growth, though contacts in service industries indicated that they anticipate rising wages in the months ahead--particularly in education and health, retail, wholesale and distribution industries. Though New York State raised its minimum wage structure on January 1, it is too early to assess its effects.
Prices
Business contacts reported some pickup in both input prices and selling prices. Manufacturing contacts noted particularly widespread price increases, while most service sector contacts noted only scattered increases. Both manufacturers and service firms also said they anticipate increasingly widespread cost increases in the months ahead. Retailers generally maintained that selling prices were steady to down slightly. Broadway theaters reported that ticket prices have increased by considerably more than the seasonal norm during this past holiday season.
Consumer Spending
Retail merchandise sales were mixed but generally sluggish in November and December. Two major chains reported that same-store sales were down moderately from 2015 levels and below plan, though one noted that its on-line sales were up by double-digit percentages. By contrast, business picked up for upstate New York retailers. Cold weather reportedly boosted sales of winter apparel and outerwear. Despite the disappointing sales performance, inventories were said to be at reasonably satisfactory levels. Retail contacts were generally not very optimistic about the near-term sales outlook.
Auto dealers in upstate New York reported that sales of new and used vehicles picked up in the final two months of the year. Inventories of new vehicles have remained on the high side. Retail and wholesale credit conditions were reported to be in good shape.
Consumer confidence in the Middle Atlantic States (NY, NJ, PA) surged in December, reaching its highest level in more than nine years.
Manufacturing and Distribution
Manufacturers reported that business activity has picked up noticeably since the last report and expressed increased optimism about the near-term outlook. Similarly, businesses in the wholesale trade and transportation industries reported widespread improvement in business activity and were increasingly optimistic about future business conditions.
Services
Service-sector businesses reported steady to slightly improving business conditions since the last report. Looking ahead, these businesses were generally optimistic about the outlook--particularly those in the information and professional & business services sectors. Tourism activity has remained sluggish, as hotel business and Broadway theater attendance were flat to down from a year earlier.
Real Estate and Construction
Housing markets have been mixed across the District since the last report, with weakness continuing at the high end. New York City's rental market has weakened noticeably, as rents for smaller units have leveled off, while rents of larger units have declined. Apartment rents elsewhere have been mostly flat of late, but still up modestly from a year earlier. Rental vacancy rates have increased in New York City, as well as across upstate New York, while they have edged down in northern New Jersey.
New York City's co-op and condo resale market has also weakened. Both sales activity and prices have slipped, except on small and moderately priced units. Bidding wars have become considerably less prevalent than earlier in the year. Elsewhere across the District, conditions have been more mixed. Home sales in the suburbs around New York City picked up considerably, though prices have remained fairly stable. In upstate New York, the market is still characterized as quite strong. Sales activity has been fairly robust for this time of year, inventories have remained tight, prices have continued to climb and sellers have continued to see multiple offers above the listing price. In contrast, home prices have remained generally flat in northern New Jersey, though activity has picked up somewhat.
Commercial real estate markets were steady to somewhat slacker in November and December. Office availability rates rose modestly in upstate New York, Long Island, Westchester and Fairfield counties, while rates remained steady in New York City and Northern New Jersey. Asking rents for office space were flat to up modestly in most of the District, though they declined in upstate New York. In contrast, the market for industrial space has shown continued strength. Across the New York City metro area, industrial vacancy rates have declined further and rents have risen fairly sharply. In upstate New York, though, vacancy rates have been mostly flat, and rents have edged lower.
New multi-family development has been weak in most of the District, except in northern New Jersey where it has held steady at a strong level. Single-family construction has remained sluggish across the District. Office construction has picked up somewhat in Manhattan but has been flat to down modestly across most of the District.
Banking and Finance
Small- to medium-sized banks reported strengthening demand for commercial mortgages but little change in demand for consumer loans, residential mortgages, and commercial and industrial (C&I) loans. Bankers reported that credit standards were unchanged across all loan categories. No change was reported in spreads of loan rates over cost of funds across all loan categories except C&I, for which banks reported wider spreads. Bankers indicated lower delinquency rates for commercial mortgages and C&I loans but no change in delinquency rates for the remaining loan categories.