January 18, 2023
Summary of Economic Activity
Economic activity in the Second District declined significantly in the latest reporting period and most business contacts do not expect activity to increase in the coming months. Input prices continued to increase but have decelerated noticeably and selling price increases have moderated somewhat. Hiring has slowed, wage growth has remained modest, and businesses reported that they plan to add staff, on balance, in the months ahead. Manufacturing activity weakened substantially in the final weeks of 2022. Consumer spending was mixed but somewhat weaker overall, while tourism has remained strong. The home sales and rental markets showed further signs of cooling, though concerns about housing affordability remain widespread. Commercial real estate markets stabilized, and construction activity has remained sluggish. Conditions in the broad finance sector were generally steady, but regional banks reported widespread declines in loan demand, ongoing tightening in credit, and rising delinquency rates.
Labor Markets
Employment continued to expand, though at a more subdued pace than in recent months. A number of business contacts reported that it has become somewhat easier to attract and retain workers. A large upstate New York employer noted that turnover has slowed noticeably in recent weeks and that attrition rates have now fallen below pre-pandemic levels. Still, there continues to be strong demand for skilled workers—particularly in IT, finance, and sales occupations. A New York City employment agency remarked that, despite recent layoff announcements, layoffs do not seem unusually high and job postings remain plentiful. Hiring plans for the first half of 2023 remained solid.
Business contacts reported steady and modest wage growth, though one upstate employment agency noted some slowing. The steepest wage growth over the past month was reported from financial services firms. Businesses across all major industry sectors plan to raise wages in the months ahead—particularly in wholesale trade, transportation, and leisure & hospitality.
Prices
Price pressures, both current and projected, have eased noticeably. Business contacts reported that the prices they pay have continued to increase but to a much lesser degree than in recent months. Price pressures have abated most significantly in the trade, transportation, and manufacturing sectors. Looking ahead, fewer contacts foresee future escalation in prices paid than at any point since early 2021.
Selling price increases were reported to be somewhat less widespread than in the last report. Notably, retailers reported modestly declining prices, and transportation firms indicated that their prices were flat. Retailers and wholesalers indicated that they planned to keep prices mostly steady in the months ahead, while businesses in most other sectors anticipate moderate price hikes.
Consumer Spending
Consumer spending has been little changed in recent weeks. Nonauto retailers reported that business was relatively sluggish over the holiday season, with some of the weakness attributed to difficulties in procuring supplies and staff. Auto dealers in upstate New York reported that sales of new vehicles were steady to modestly higher, helped by improvement in the supply chain. However, sales of used vehicles have softened further. Consumer confidence across New York State surged to its highest level in more than three years in December.
Manufacturing and Distribution
Manufacturers wound up 2022 on a bleak note, reporting the most widespread decline in activity since early in the pandemic. Contacts in the transportation & warehousing sector also noted declining activity, while wholesale distributors indicated flat activity. On a positive note, a number of businesses indicated that supply disruptions had eased. Looking ahead, manufacturers do not expect much improvement, while transportation, warehousing, and wholesale trade firms were more optimistic.
Services
Service sector activity continued to weaken in the latest reporting period. Providers of professional & business services and education & health services reported ongoing declines in activity, while information firms noted a pickup in business. Contacts in the leisure & hospitality sector indicated some leveling off in activity, following weakening in the prior report. Looking ahead, information sector businesses expressed increased optimism about the outlook, but contacts in other service industries anticipated flat to modestly declining activity.
Tourism activity in New York City strengthened further in December. Hotel occupancy rates climbed above 80 percent, versus 60 percent a year earlier, and average room tariffs were up roughly 20 percent over the year. Moreover, visits to major tourist attractions, such as the Statue of Liberty, have rebounded to pre-pandemic levels. While attendance at Broadway shows has been mixed, high-profile musicals targeted towards visitors have reportedly fared quite well. Despite a dearth of visitors from Asia—especially China—the overall flow of international visitors has been fairly strong, though visitors are spending less, on average, due in part to the strong dollar.
Real Estate and Construction
The residential sales and rental markets showed further signs of cooling in late 2022. Real estate contacts in upstate New York reported that prices have flattened out, and that sales volume and buyer traffic have continued to wane—in part attributed to unusually harsh winter weather. In and around New York City, sales of both single-family homes and apartments fell fairly sharply, while prices were flat to down modestly. Still, throughout the District, the inventory of available homes remains quite low, as many sellers have decided not to list.
Residential rental markets weakened further, though the high end of the market has shown some resilience. In New York City, rents have trended down modestly since peaking last summer, though they remain higher than a year ago; landlord concessions have also increased somewhat. Elsewhere, rents have generally been steady, though one contact in upstate New York noted that already high rents continued to trend up. Rental vacancy rates, though still quite low, have risen modestly.
Commercial real estate markets generally appear to have stabilized, though at weak levels. Office vacancy and availability rates leveled off in New York City, edged up in northern New Jersey, but declined modestly across upstate New York. Office rents were steady to up slightly across the District; aside from New York City, office rents are near or above pre-pandemic levels. The industrial market has been steady as well, with vacancy rates little changed and rents trending up modestly.
Construction contacts reported continued weakening in business conditions and were fairly pessimistic about the near-term outlook. New office construction starts remained at depressed levels throughout the District, though there was some pickup in New York City and Long Island. New industrial construction has largely dried up. Multi-family residential starts weakened across most of the District but picked up modestly in New York City, though from low levels. A sizable volume of new apartment development is due to be completed in 2023.
Banking and Finance
Contacts in the broad finance sector reported little change in business conditions. However, small to medium sized banks in the District reported widespread declines in loan demand across all segments—especially residential mortgages. Credit standards continued to tighten, and loan spreads were little changed except on business loans, where they widened. Almost all bankers reported higher deposit rates. Finally, delinquency rates rose modestly, particularly on commercial mortgages.
Community Perspectives
With pandemic assistance no longer available, there have been growing requests for local governments and nonprofits to provide emergency support for low-income households. Demand for mental health services also continued to increase. These challenges have been compounded by widespread staffing shortages. A dearth of affordable housing also remains a major concern. Finally, to support digital equity in the District, new infrastructure funds are expected to expand high-speed Internet access to those with more moderate means.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy