Beige Book Report: New York
March 3, 2021
Summary of Economic Activity
Economic activity in the Second District has declined modestly in the latest reporting period. However, with vaccinations rising and the spread of COVID on a steady decline, business contacts have grown considerably more optimistic about the near-term outlook. While the labor market has remained sluggish, with employment flat to down modestly in almost all industries, wage growth and hiring plans have picked up. Input price pressures have continued to expand, and more businesses are raising their own prices or planning price hikes in the months ahead. Consumer spending has remained lackluster in early 2021, though auto sales have firmed. Tourism has picked up and prospects for the months ahead have improved. Housing markets have generally remained robust, whereas markets for office and retail space have continued to weaken. Finally, contacts in the broad finance sector continued to indicate weakening conditions, though regional banks reported increased loan demand and modest improvement in delinquency rates.
Employment and Wages
The labor market has remained sluggish since the start of the year. A major New York City employment agency characterized hiring activity as moribund, noting that it is hard to on-board and train new staff remotely and that there is still a great deal of uncertainty. On the other hand, an upstate employment agency reported a pickup in hiring activity in recent weeks and noted that it has been difficult to fill lower-wage jobs. A major upstate New York employer indicated that it has had difficulty retaining IT workers, losing them to remote work opportunities in other parts of the country.
Businesses in most sectors—particularly construction and leisure & hospitality—have continued to report weakening employment. The exceptions were manufacturing, information, finance, and retail, where employment was reported to be little changed. Looking ahead, however, a growing proportion of businesses reported plans to add staff, on net, especially in the leisure & hospitality sector.
Wages have accelerated further, with more businesses raising wages than at any time since the start of the pandemic. Wage increases were most widespread in the education & health, retail, finance, and transportation sectors. A number of contacts stated that the January 1st minimum wage hike across much of the District, as well as generous unemployment benefits, have put upward pressure on wages. Looking ahead, a growing number of businesses also plan to raise wages—most notably in leisure & hospitality and retail & wholesale trade.
Prices
Firms' input prices have accelerated since the beginning of the year, particularly among businesses in the manufacturing and construction sectors. In particular, prices of metals and construction materials are said to have escalated substantially. Businesses in most sectors expect fairly widespread increases in the prices they pay in the months ahead.
Selling prices have picked up modestly, primarily among retailers, wholesalers, and manufacturers. Looking ahead, businesses in these same sectors plan further price increases.
Consumer Spending
Consumer spending has remained sluggish thus far in 2021. Retailers largely report that sales have been flat at depressed levels. However, retail contacts have become substantially more optimistic about the near-term outlook.
New vehicle sales were mixed but, on balance, up slightly, with scattered reports of improvement across upstate New York. In contrast, used auto sales have weakened. Contacts reported lean inventories and expressed concern about inventory issues related to a shortage of microchips used in new vehicles.
Consumer confidence among residents of the Middle Atlantic region (NY, NJ PA), which had fallen to a multi-year low in November and December, rebounded moderately in January.
Manufacturing and Distribution
Manufacturing activity picked up somewhat in January and early February, expanding at a moderate pace. In contrast, wholesale trade contacts reported flat activity, and businesses in transportation & warehousing noted some weakening. A large and growing number of firms in these sectors reported supply disruptions and delays—particularly in getting shipments from overseas.
Looking ahead, manufacturers and wholesalers remain widely confident about business prospects for the first half of 2021, while transportation & warehousing contacts have now also become more optimistic.
Services
Service industry contacts noted ongoing weakening in business activity in the latest reporting period. Contacts in the information, and leisure & hospitality sectors continued to report fairly widespread declines in activity, while those in education & health and professional & business services reported more moderate declines. Looking ahead, professional & business service firms expressed widespread optimism about prospects for the first half of 2021, while those in other industries have grown somewhat more optimistic and expect moderate improvement.
Tourism in New York City has shown more signs of picking up, though from depressed levels. The decline in the spread of the pandemic and increased vaccinations in recent weeks have prompted some easing in restrictions on indoor dining. The closing of many hotels catering to business travelers has contributed to a nearly one-third reduction in hotel capacity since the pandemic began. Hotels that have remained open have reported rising occupancy rates on weekends, reflecting increased leisure travel. In fact, the occupancy rate over Presidents' weekend exceeded 60 percent—the highest since the start of the pandemic. Museums that are open have reportedly been at or near capacity, albeit reduced capacity. A local travel industry expert anticipates a strong rebound in leisure visitors by summer but expects business travel to lag.
Real Estate and Construction
Housing markets have remained mixed but generally robust in the latest reporting period. Sales markets in upstate New York have remained solid in early 2021, with homes selling quickly and lean inventories continuing to drive up prices. Home-sales activity in areas around New York City has remained strong, though restrained by record-low inventory levels, with prices up considerably from a year ago but leveling off.
New York City's co-op and condo market has picked up noticeably in terms of volume, but with prices running 5-10 percent below year-earlier levels, as inventory remains elevated. Both the steepest price drops and the strongest activity have been at the high end of the market. New York City's residential rental market has continued to slacken, with rents down 10-15 percent from a year ago in Brooklyn and down 20-25 percent in Manhattan and Queens. Rental vacancy rates across New York City are reported to be at multi-decade highs. However, leasing activity has been increasingly robust, with this January being the liveliest in more than a decade.
Commercial real estate markets have weakened further, across the District. Retail and office markets have been particularly weak in New York City, where vacancy and availability rates have soared and asking rents have continued to decline, with landlords reportedly offering increased concessions.
New construction activity has remained sluggish in both the residential and commercial segments. Contacts in the construction industry noted widespread weakening in activity, possibly exacerbated by harsh weather, and they remain somewhat pessimistic about the near-term outlook. Contacts continued to report sharp increases in the cost of materials, as well as supply disruptions.
Banking and Finance
Contacts across the broad finance sector continued to report weak conditions but expressed somewhat more optimism about the near-term outlook. Separately, small to medium-sized banks in the District reported increased loan demand across all categories except consumer loans. Banks reported no change in credit standards on consumer loans but tightening standards for all other categories. Finally, delinquency rates held steady for C&I loans but improved across all other categories.
For more information about District economic conditions visit: www.newyorkfed.org/regional-economy