Beige Book Report: New York
September 8, 2021
Summary of Economic Activity
Economic growth in the Second District returned to a more moderate pace in the latest reporting period, as the Delta variant has become more prevalent. Still, contacts continued to express fairly widespread optimism about the business outlook. The job market has remained exceptionally tight, as firms continued to add workers and raise wages amidst extensive reports of labor shortages. Input price pressures have continued to broaden, and a large majority of businesses report that they have continued to hike selling prices. Consumer spending has leveled off, reflecting a combination of decelerating demand and extensive supply bottlenecks. Home sales and rental markets have been strong, while office markets were steady in much of the District but remained weak in New York City. Construction activity has picked up. Finally, contacts in the broad finance sector reported modest growth in activity, while regional banks reported steady loan demand and ongoing declines in delinquency rates.
Employment and Wages
The job market has remained exceptionally tight, with businesses continuing to add workers and planning further hiring in the months ahead, but worried about widespread labor shortages. A major New York City employment agency reported an increase in job postings, noting that employers and job candidates remain far apart not only on compensation but also on flexibility regarding hybrid work arrangements. An upstate New York employment agency indicated a slight increase in hiring activity—particularly for salespeople—and also reported ongoing labor shortages, noting that businesses have been increasingly looking outside the region for candidates.
Businesses anticipate further widespread hiring in the months ahead, especially in the professional & business services and wholesale trade sectors. In particular, businesses are expected to hire more administrative support people if and when business travel picks up. Many firms that have been operating remotely have pushed back a return to the office from September to later in the year.
Wage growth has picked up further, particularly in the leisure & hospitality and retail trade sectors. An upstate New York employment agency noted a sharp increase in wages, while a New York City agency reported moderate wage growth. Looking ahead, fairly widespread wage hikes are anticipated across all major industries.
Prices
Firms have continued to report exceptionally widespread increases in input prices—particularly in the construction, manufacturing, wholesale trade, and transportation & warehousing industries. Contacts in all sectors anticipate widespread input price hikes for the remainder of 2021.
Selling prices accelerated further, with particularly widespread price hikes reported by manufacturers and wholesalers. Retail prices have risen to varying degrees: effective prices for both new and used vehicles are up sharply, while prices for general merchandise have risen moderately. A sizable share of contacts in all sectors plan to increase prices over the next six months.
Consumer Spending
Consumer spending has leveled off in the latest reporting period. Non-auto retailers reported some plateauing in activity in recent weeks, though one major chain did note continued improvement in sales in August, led by brisk back-to-school spending. In New York City, sales have continued to trend up, as mask and vaccine mandates have alleviated some safety concerns, but they remain well below pre-pandemic levels, hampered by an ongoing dearth of international visitors and office workers. Retailers have grown somewhat less optimistic about prospects for the remainder of 2021. Consumer confidence among New York State residents remained near record highs in July.
An increasingly severe shortage of auto inventories has led to weakening sales of new vehicles in recent weeks. Dealers perceive no end in sight to the microchip shortage that has severely limited their inflow of new vehicles. At this point, new cars being delivered to dealers are largely already spoken for. Sales of used autos have also weakened somewhat but remain at high levels.
Manufacturing and Distribution
Contacts in the manufacturing and wholesale trade sectors indicated that growth has slowed markedly in recent weeks, while those in the transportation & warehousing sector noted a pickup in growth. Contacts continued to note that their business has been constrained by supply disruptions and worker shortages. Looking ahead to the second half of this year, companies in these sectors remained widely optimistic about business prospects, though labor shortages remained a major concern.
Services
Service industry contacts reported continued growth in activity but at a slower pace than in recent months. The information and leisure & hospitality industries, which had looked overwhelmingly positive in the prior report, grew more moderately. Similarly, firms in professional & business services and education & health services reported moderate improvement. Looking ahead, contacts in all these sectors continued to express optimism about business prospects.
Tourism has been mixed but slightly softer, on balance, since the last report. Across upstate New York, major outdoor events, such as the state fair, have been well attended, contributing to a brisk summer tourism season. But the extension of restrictions on visitors, especially from Canada, has dampened activity in some areas.
In New York City, rising concerns about the Delta variant and the extension of federal restrictions on foreign visitors have constrained activity and led to the cancellation of summer events, such as the Fancy Foods Show and the Auto Show. Still, as hotels have reopened, occupancy rates remained above 50 percent, and a number of major events, such as the U.S. Open and ComicCon, are still on.
Real Estate and Construction
Housing markets have been mixed but, on balance, steady in recent weeks. Sales markets outside New York City have remained robust, though volume has receded somewhat—largely reflecting a lack of supply and a typical summer lull. Inventories have remained exceptionally lean, and prices are up fairly dramatically from pre-pandemic levels and have continued to rise, though bidding wars have become less prevalent and overbids have become more subdued. In New York City, market conditions have been mixed but mostly stronger. In Manhattan, prices have trended up but are still down 7 percent from 2019 levels, while inventory remains elevated; sales volume is reported to be 16 percent higher than before the pandemic. In the rest of the city, conditions are more akin to suburban markets, with prices at record highs and inventories lean.
New York City's rental market has continued to rebound, with leasing activity reported to be exceptionally brisk and vacancy rates retreating. Rents have continued to rebound but are still down 10 percent from early-2020 levels in Manhattan and down 3-5 percent across the rest of New York City. Rents have generally rebounded more strongly on larger than on smaller units. A substantial supply of new apartments (rental and condo) is currently in development.
Commercial real estate markets have remained mixed across the District. New York City's office market has continued to slacken, with record-high sublet space available and rents still trending down. While some firms, notably large tech companies, have leased more space, many others have reduced their footprint in Manhattan or plan to do so. In suburban markets around New York City, market conditions have stabilized, with availability rates leveling off and rents steady to down slightly. Office markets across upstate New York have shown signs of rebounding.
In New York City, a sizable amount of space is currently under construction, and new construction has picked up for both office and multifamily structures. Construction sector contacts expect business to improve in the months ahead but have continued to express concern about the cost and availability of materials and labor.
Banking and Finance
Businesses in the broad finance sector indicate that activity has increased moderately since the last report. Bankers reported a slight pickup in overall loan demand, with increased demand for commercial mortgages but slightly weaker demand for consumer and commercial and industrial loans. Refinancing activity decreased on net. Credit standards were reported as unchanged across all categories, while loan spreads decreased across the board. Finally, delinquency rates continued to improve across all categories.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy