Beige Book Report: New York
October 20, 2021
Summary of Economic Activity
Economic growth in the Second District slowed to a modest pace, as supply disruptions and labor shortages have impeded economic activity. Still, contacts remained largely optimistic about the near-term business outlook. The job market has remained exceptionally tight, as firms continued to add workers and raise wages. Businesses reported ongoing widespread escalation in both input costs and selling prices. Consumer spending was flat to slightly lower, pulled down by sharply weaker vehicle sales attributed to severe supply shortages. The home sales market was mixed but on balance a bit stronger, while rental markets have continued to rebound; there were scattered signs of improvement in office markets. Both residential and commercial construction activity increased modestly, despite shortages of materials. Finally, contacts in the broad finance sector reported flat activity, while regional banks reported steady loan demand and unchanged delinquency rates.
Employment and Wages
The job market has remained exceptionally tight, with businesses continuing to add workers—particularly in the leisure & hospitality and transportation industries. Most contacts noted severe labor shortages despite federal supplementary jobless benefits expiring. Many businesses reported difficulty hiring and retaining workers, and some contacts noted that more people are retiring early. An upstate New York employment agency noted especially strong demand for tech workers and salespeople. A New York City agency reported more moderate hiring but expects a pickup as companies bring more people back to the office. Many businesses said they plan to continue hiring in the months ahead.
Wages have continued to grow strongly across all service industries except finance, where wage hikes are reported to be modest. A New York City employment agency similarly noted that its clients—mostly financial service firms—have been holding the line on wage gains. However, agencies in upstate New York reported sizable wage increases. Looking ahead, businesses across all major industries expect widespread wage hikes to persist.
Prices
Firms continued to report broad-based escalation in input prices—particularly in goods production and distribution industries. Rising prices were widely mentioned for steel, aluminum, lumber, gasoline, and freight-related services. Contacts in all sectors anticipate widespread input price hikes in the months ahead.
Selling prices continued to climb, with particularly widespread price hikes again reported by manufacturers and wholesalers. Notably, more retailers than at any time in recent years indicated that they have raised prices. A sizable proportion of contacts in most sectors plan to hike prices in the months ahead.
Consumer Spending
Consumer spending weakened in the latest reporting period. Non-auto retailers reported steady to lower activity in recent weeks and have grown somewhat less optimistic about the upcoming holiday season. One retail chain indicated that sales at New York City stores continued to lag well below pre-pandemic levels, largely due to the lack of office workers and international visitors. Consumer confidence among New York State residents, though still fairly high, fell to its lowest level of the year in September.
An intensifying dearth of new vehicle inventories has led to a sharp drop-off in sales. Most of the incoming inventory has already been pre-sold. Ongoing severe microchip shortages have constrained inventories of new vehicles and replacement parts, and dealers expect this situation to continue at least through the end of the year. Moreover, the decline in new sales has also led to a dwindling supply of used autos and a subsequent drop in sales due to fewer trade-ins.
Manufacturing and Distribution
While wholesale trade businesses indicated some further moderation in growth, manufacturers continued to report fairly solid growth, and those in the transportation & warehousing sector noted ongoing brisk growth. Contacts noted that their businesses have been increasingly constrained by widespread supply delays and disruptions and worker shortages. Looking ahead to the next six months, companies in these sectors remained widely optimistic about business prospects, despite concerns about labor shortages and supply bottlenecks.
Services
Service industry contacts reported some deceleration in activity to a modest pace of growth in recent weeks. Contacts in the leisure & hospitality and information sectors have become somewhat less upbeat about both recent trends and the near-term outlook. However, businesses engaged in professional & business services and education & health services remained positive about future business prospects.
Tourism has continued to increase since the last report. Rochester's major convention center recently re-opened to hosting major events, giving a lift to local tourism. However, in much of upstate New York, a dearth of Canadian visitors, due to the ongoing border closure, has constrained growth. In New York City, tourism activity picked up in September, buoyed by the UN General Assembly and the U.S. Open, as hotel occupancy rates climbed to their highest levels since the start of the pandemic. While domestic leisure visitations are roughly back to normal levels, business and international travel to the city have remained moribund—the latter driven largely by ongoing travel restrictions.
Real Estate and Construction
Housing markets have been steady to slightly stronger, on balance, in recent weeks. Sales activity picked up noticeably across New York City, far exceeding pre-pandemic levels; the inventory of unsold homes receded but remained higher than normal, especially in Manhattan. Across the rest of the District, sales activity slowed somewhat, constrained by very low inventories. Home prices continued to rise, approaching pre-pandemic levels in Manhattan but far exceeding them across the rest of the District.
New York City's rental market has continued to rebound, with vacancy rates declining and leasing activity remaining brisk, though a bit less so than during the summer. Rents have continued to rebound, though a local industry expert noted a striking divergence in Manhattan between the lower and higher ends of the market—underscoring this point, rents are up roughly 2 percent from 2019 levels in doorman buildings but down roughly 15 percent in non-doorman buildings. A good deal of new apartment development (rentals and condos) is currently in the pipeline.
Commercial real estate markets have improved somewhat across the District. New York City's office market, which had been weakening steadily throughout the pandemic, appears to have stabilized in recent weeks with availability rates and asking rents leveling off. Across the rest of the District, office vacancy rates were steady to slightly lower, and rents were steady to up modestly. The industrial market continued to strengthen, with vacancy rates declining to near record lows and rents rising at a 5-10 percent pace across the District. The retail leasing market, in contrast, has remained sluggish.
Both multi-family residential and non-residential construction starts have picked up further in recent weeks, and there continues to be a substantial amount of ongoing construction. However, industry contacts reported that activity slowed somewhat in September, citing major delays in acquiring construction materials, as well as disruptions from tropical storm Ida in early September, which caused extensive flooding. Still construction sector contacts continue to be cautiously optimistic about prospects for the months ahead.
Banking and Finance
Businesses in the broad finance sector indicated that activity has flattened out since the last report. Some contacts have expressed growing concern about cyber- and ransom-ware attacks, both in their own industry and among customers and borrowers. Small to medium-sized banks across the District reported that loan demand was flat overall—stronger for commercial mortgages and commercial & industrial loans but weaker for consumer loans and residential mortgages. Refinancing activity remained little changed, on net. Loan spreads narrowed for consumer loans and commercial & industrial loans. Credit standards and delinquency rates were little changed across all categories.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy