Beige Book Report: New York
September 7, 2022
Summary of Economic Activity
Economic activity in the Second District contracted modestly in the latest reporting period, with worker shortages continuing but supply backlogs easing somewhat. Businesses did not expect much improvement in the months ahead. Selling prices, input prices, and wages all continued to increase but to a slightly lesser extent than earlier in the year. Businesses continued to hire, albeit at a somewhat slower pace than in recent months, and there have been scattered reports of layoffs. Still, a wide range of employers plan to add staff, on net, in the months ahead. Manufacturers reported that activity fell significantly in recent weeks. Consumer spending has been flat, though tourism has remained strong. The home sales market softened further, while the rental market continued to strengthen, amplifying concerns about housing affordability. Commercial real estate markets were mixed but, on balance, a bit weaker. Construction starts declined, and industry contacts have grown increasingly pessimistic. Conditions in the broad finance sector improved but remained weak, and regional banks reported ongoing declines in loan demand, tighter credit standards, and steady delinquencies.
Labor Markets
Employment increased modestly despite ongoing worker shortages, though businesses reported some improvement in labor availability and there have been scattered reports of layoffs. One upstate New York employment agency noted that demand for workers has abated a bit but remains solid, especially in technology-related fields. A New York City agency reported that hiring has remained strong and workers remain hard to find. Businesses in the manufacturing, distribution, and information sectors indicated that they continue to add staff, on net. Firms in all major industry sectors except construction, retail, and finance plan to add staff in the months ahead.
Businesses across all major sectors except finance continued to report widespread wage increases. However, one employment agency noted a leveling off in wages, and another indicated that the pace of wage growth was slowing. Businesses across all sectors plan to raise wages further in the months ahead. Remote work arrangements among office-based businesses remain fairly widespread and are not expected to change much in the year ahead.
Prices
Most business contacts noted ongoing broad-based escalation in input prices, though to a somewhat lesser extent than in the prior report. Cost increases were particularly widespread in construction. Contacts across all major sectors expect cost pressures to persist.
Businesses continued to report widespread escalation in their selling prices, though to a slightly lesser extent than in recent months. Increases were most pervasive in the construction, manufacturing, distribution, and leisure & hospitality industries. A large but declining share of businesses said they plan further price hikes in the months ahead.
Consumer Spending
Consumer spending has been little changed in recent weeks. Nonauto retailers reported that business has been essentially flat, picking up a bit in July but tapering off in the first half of August. One retail chain noted some uncertainty about the upcoming holiday season, anticipating a modest decline from 2021 levels. Auto dealers in upstate New York reported that sales of both new and used vehicles have remained sluggish in the latest reporting period—due mainly to lack of inventory but also to affordability issues which have crimped demand.
Manufacturing and Distribution
Manufacturing activity has been choppy, declining significantly in recent weeks. However, businesses engaged in wholesale trade and transportation & warehousing continued to report modest growth. Manufacturers reported a slight decline in unfilled orders and expect both unfilled orders and delivery times to decline noticeably in the months ahead. Businesses in manufacturing and distribution report some improvement in supply availability, and, looking ahead, disruptions and delays are expected to diminish.
Services
Activity in the service sector has been flat to slightly weaker in the latest reporting period. Education & health providers and information firms noted a slight increase in activity, while businesses engaged in leisure & hospitality and professional & business services saw a modest decline. Businesses in these sectors remain mildly optimistic about the near-term outlook.
Tourism, however, has continued to show strength. In New York City, hotel occupancy has remained at or above 75 percent in recent weeks. Domestic tourism has been fairly robust, and international visits have picked up further, led by Europe, whereas visits from Asia (especially China) have lagged substantially. Moreover, visitors from Europe have been spending briskly, despite the weak Euro and Sterling. Underscoring this trend, attendance at tourist attractions, such as the Statue of Liberty, has been solid, and the U.S. Tennis Open is reportedly sold out. Upcoming events, such as the UN General Assembly and Climate Week, are expected to draw more visitors. Business travel, though still well below pre-pandemic levels, has picked up—mainly reflecting smaller in-person-only conferences and meetings.
Real Estate and Construction
The home sales market has softened over the summer, while the rental market has continued to strengthen. In New York City, as well as across most of the District, homes sales tapered off, and the inventory of available homes, though still very low, edged higher. Home prices appear to have leveled off across most of the region and the prevalence of bidding wars has receded noticeably.
In contrast, residential rental markets strengthened further. Throughout New York City, rents continued to rise briskly in July and were up roughly 20 percent from a year earlier in Manhattan and up about 15 percent in Brooklyn and Queens. Rental vacancy rates turned up modestly but are still near 20-year lows. Rents have also continued to trend up fairly strongly in upstate New York and northern New Jersey.
Commercial real estate markets have softened a bit, on balance. Office markets were steady to slightly weaker, with vacancy rates edging up in Manhattan, northern New Jersey, and upstate New York but steady elsewhere. Office rents were little changed across the District. The industrial market has also shown scattered signs of weakening, with vacancy rates steady to modestly higher but rents continuing to rise briskly. Retail rents were flat, while vacancy rates rose modestly.
Construction activity weakened somewhat, as construction starts slipped. Still, a fair amount of space remains under construction, though this too has declined a bit, as a good deal of commercial space under development has come or is about to come to market. Industry contacts characterized the general business climate as quite negative and worsening, and contacts are somewhat pessimistic about the near-term outlook.
Banking and Finance
Contacts in the broad finance sector characterized the general business climate as negative but improving modestly. Small to medium-sized banks reported lower loan demand across all segments. Refinancing activity also decreased. Credit standards tightened for business loans and commercial mortgages but were little changed for consumer loans and home mortgages. Loan spreads widened and deposit rates rose. Finally, delinquency rates were unchanged across all categories.
Community Perspectives
Community leaders reported that rising prices have had various adverse effects on people in the District. Food pantry managers were seeing an ongoing rise in food prices and increased demand from clients, leading to heightened food insecurity. However, they noted some easing of logistical and delivery challenges. With rents escalating rapidly, especially in New York City, concerns about housing affordability have grown. Some nonprofits' expansion plans, driven by new mandates and funding, have been hampered by labor shortages caused by turnover, retirements, and wage competition from the private sector.
For more information about District economic conditions visit: www.newyorkfed.org/regional‐economy