April 20, 2022
Summary of Economic Activity
Economic growth in the Second District picked up to a moderate pace in recent weeks. Businesses continued to report substantial escalation in selling prices, input prices, and wages, and many noted difficulties obtaining necessary supplies. The job market has remained exceptionally tight, with businesses continuing to add staff amidst high turnover. Consumer spending picked up somewhat in recent weeks, though auto dealers noted that ongoing shortages of vehicles continued to restrain sales. There was also a pickup in tourism and manufacturing activity. The home sales and rental markets strengthened further in March, while commercial real estate markets were steady to stronger. Commercial construction activity remained depressed, while multifamily residential construction continued at a moderate pace. Regional banks reported a decline in household delinquency rates. With growing concern about supply disruptions, worker shortages, and the war in Ukraine, business contacts across the District—especially those in manufacturing, distribution, and construction—have become less optimistic about the near-term outlook.
Labor Markets
Despite ongoing worker shortages, businesses continued to report moderate job growth. Staffing agencies have seen an ongoing abundance of job openings across a wide range of industries and occupations. Business contacts have noted particularly severe shortages of truck drivers, construction workers, IT staff, and human resource professionals. Restaurants have had trouble maintaining adequate staff. Some businesses say they have grown less picky about required qualifications for open jobs and have become more flexible about remote work arrangements. Businesses in most major industries expect to expand their workforces in the months ahead.
Contacts in all sectors continued to indicate that they were raising wages and anticipated further increases in the months ahead. Some contacts observed that workers in high-demand occupations have seen outsized pay increases when changing jobs. With increasing focus on worker retention, some businesses noted that they have raised wages by 20 percent or more over the past year.
Prices
Most business contacts noted ongoing escalation in input prices for a wide range of supplies. In particular, costs for both energy and freight (ground and ocean) were widely cited to be high and increasing. Contacts in all major industry sectors expect input prices to rise further in the months ahead.
A large and growing proportion of businesses report that they have raised selling prices, most notably in the manufacturing, wholesale & retail trade, transportation, and construction sectors. Some businesses have reportedly grown more optimistic about their business prospects after raising prices and seeing them stick. One retail chain noted that it has been able to raise prices on fashion merchandise but less so on more everyday offerings. A large and growing share of businesses plan to increase their selling prices in the months ahead.
Consumer Spending
Consumer spending picked up somewhat in March. Non-auto retailers generally reported stronger sales, though some contacts noted that inflation has eroded consumers' spending power, dampening demand. In New York City, weak international tourism and harsh winter weather have limited sales growth. Supply disruptions have reportedly prompted many retailers to order merchandise further in advance. Consumer confidence among New York State residents rose briskly in March and was roughly on par with pre-pandemic levels.
New vehicle sales remained sluggish in February and March, still restrained by a dearth of inventory, as the microchip shortage has limited production and kept inventories low. Almost all new cars delivered to dealers have been pre-sold 6-8 weeks in advance. Sales of used vehicles were steady, while prices appear to have plateaued.
Manufacturing and Distribution
Manufacturing activity picked up in March, following a winter slump, while activity in the wholesale, transportation, and warehousing sectors continued to expand at a solid clip. However, a number of manufacturers reported that the combination of the Ukraine war, sanctions on Russia, shutdowns in China, and a severe shortage of trucks and trucking services have impeded some key supply channels. Businesses in these sectors have grown less sanguine about the near-term outlook.
Services
Activity in the service sector has been steady to stronger in recent weeks. Education & health providers and information firms reported little change in activity, while professional & business service firms indicated a modest pickup in conditions. Notably, leisure & hospitality and related businesses noted a substantial pickup in business, following an Omicron-related slump during the winter months.
With COVID cases subsiding in New York City and restrictions being eased, tourism has picked up noticeably in recent weeks. Hotel occupancy rates have increased, even as average daily room rates continued to rebound. Moreover, most hotels have reopened citywide, with the number of rooms in inventory now down less than 3 percent from before the pandemic. Domestic visits to New York City have rebounded to about 90 percent of normal levels, while tourism from abroad has only recovered to about 65 percent. Museums have been increasingly busy in recent weeks, and Broadway theater attendance has rebounded to about 15 percent below normal, with performances occasionally disrupted by COVID. Finally, attendance at trade shows has been growing, and recent events, like Comicon, have seen great turnout.
Real Estate and Construction
Home sales and rental markets have continued to strengthen since the last report, though a low inventory of available homes has restrained sales transactions in parts of the District. Real estate contacts in upstate New York noted that a dearth of homes listed for sale has continued to drive up prices and spur bidding wars. Throughout the New York City area, resale volume has been increasingly robust, and prices have trended up briskly; inventories are very low, except in Manhattan, where they are still elevated but declining.
Residential rents across the District have trended up briskly. New York City's residential rental market has continued to tighten, as vacancy rates have declined to pre-pandemic levels. Rents have fully rebounded to at or above pre-pandemic levels across most of the city, with greater escalation at the high end of the market. An industry expert noted that rental concessions have become less common across the city and estimates that bidding wars are occurring on about one in five new leases. Both industry contacts and community organizations have been expressing concern about the availability and affordability of housing.
Commercial real estate markets were steady to stronger, on balance. Office markets across the District were essentially unchanged, with vacancy and availability rates steady and rents flat to up modestly. One New York City contact noted that many companies are sub-leasing excess space. The industrial market, however, has continued to strengthen, with vacancy rates steady at low levels, and rents continuing to trend up strongly. In contrast, the market for retail space has remained weak.
Construction activity remained sluggish overall, with activity reportedly hampered by unseasonably harsh winter weather, escalating construction costs, and shortages of both materials and workers. Non-residential construction starts remained particularly sluggish, with little new activity outside the industrial and warehouse segment. Multi-family residential starts have been steady at a modest level, though there continues to be a good deal of development in the pipeline. Looking ahead, construction sector contacts have become less optimistic about the general outlook, citing widespread shortages.
Banking and Finance
Contacts in the broad finance sector reported little change in activity but remained fairly optimistic about the outlook. Small to medium-sized banks in the District reported little change in overall loan demand—lower for consumer loans and residential mortgages but higher for commercial mortgages. Credit standards were largely unchanged, while loan spreads widened somewhat. Finally, bankers reported lower delinquency rates on consumer loans and residential mortgages but no change on other types of loans.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy