Beige Book Report: New York
November 29, 2023
Summary of Economic Activity
Economic activity in the Second District continued to weaken during the latest reporting period. Labor market conditions cooled but generally remained solid. Though employment edged up slightly, labor demand softened and workers have become easier to find. Inflationary pressures were little changed after moderating in recent months. Consumer spending continued to slow. Manufacturing activity grew modestly, though orders were weak. Tourism activity in New York City slowly inched back toward pre-pandemic levels. Housing markets in parts of the region have started to show signs of becoming more balanced, though low inventory continued to restrain sales activity. Residential rental markets plateaued. Commercial real estate markets remained strained. Conditions in the broad finance sector weakened slightly, with loan demand declining and delinquency rates edging up. The outlook worsened, with businesses in the region no longer expecting economic conditions to improve in the coming months.
Labor Markets
Labor market conditions cooled but generally remained solid. On net, employment continued to increase in the latest reporting period, edging up slightly. However, contacts reported some softening in labor demand and improvements in worker availability across the District. After nearly four months, the recent settling of the Screen Actors Guild strike is expected to restore jobs for many New York City-area workers who were affected.
Contacts noted that some companies have become cautious about adding to their headcounts in recent weeks. Layoffs and hiring freezes in the tech industry outside of the region have boosted the availability of tech workers. Still, despite some recent improvement in worker availability, labor supply remains an issue for most industries. Regional businesses overwhelmingly reported that the inability to find workers with the right skills was restraining hiring plans.
The pace of wage growth slowed somewhat in recent weeks, especially for finance and information services firms. In fact, a New York City-area company noted a reduction in starting salaries for recent college graduates as tech workers have become easier to find. Looking forward, firms plan on increasing employment only modestly in the coming months.
Prices
Inflationary pressures were little changed in the most recent reporting period. The pace of input price increases generally held steady. While the prices of some inputs such as freight and logistics have come down, contacts reported rapidly growing costs for other inputs, particularly utilities and insurance. The pace of selling price increases also held steady this reporting period. However, looking ahead, more contacts expect the pace of price increases to pick up in the coming months.
Consumer Spending
On balance, consumer spending continued to slow but remained solid. Increases in health care spending were offset by ongoing declines in spending on travel and entertainment. Auto dealers in upstate New York reported solid growth in sales activity for both new and used cars, as improving inventory continued to expand options for buyers. While creditworthy buyers were able to get financing, those with lower credit scores have increasingly found it difficult to secure auto loans. With higher interest rates, car loan terms are getting longer as 84-month loans have become the norm.
Manufacturing and Distribution
Manufacturing activity grew modestly during the latest reporting period, though orders declined slightly. Delivery times shortened and supply availability continued to improve, but some contacts reported ongoing challenges with the supply of raw materials and durables. Motor vehicle inventory continued to improve, and dealers indicated that the UAW strike had minimal impact on inventory levels. Wholesalers and transportation & warehousing contacts reported declining business activity. Looking ahead, manufacturers do not expect activity to increase in the coming months.
Services
Service sector activity declined modestly in the latest reporting period. While businesses in leisure & hospitality reported modest growth, businesses in education, finance, and those providing business services reported sluggish activity. Service firms do not expect much improvement in the months ahead.
New York City tourism continued to inch back slowly to pre-pandemic levels. While New York City hotel occupancy rates remained higher than other U.S. cities, the lack of visitors from Asia remained a drag on the tourism recovery. Contacts reported that geopolitical instability overseas is beginning to dampen travel planning. Still, mid-week hotel demand in New York City was strong, reflecting increased business travel—a positive sign that an important part of the City's tourism economy is showing progress after lagging through much of the recovery.
Real Estate and Construction
Housing markets in some parts of the region have started to show signs of becoming more balanced for buyers and sellers, though low inventory continued to restrain sales activity and other parts of the region remained red hot. Home prices have generally continued to trend up despite relatively high mortgage rates. Contacts in upstate New York noted some cooling in demand along with an increase in listings, in part due to people leaving New York state. While demand softened in New York City, demand in its suburbs remained extremely strong, with record high prices and bidding wars on about half of sales. While creditworthy buyers were able to obtain mortgages, the availability of credit has become an issue for some buyers. One contact noted that buyers needed increased attentiveness to get lenders to the closing table.
Residential rental markets plateaued, with rents holding steady near historically high levels. New lease activity continued to fall, with landlords focusing on retaining existing tenants. In New York City, there was a small uptick in the supply of rental units, possibly due to the increased enforcement of rules restricting short-term rentals.
Commercial real estate markets weakened for both office and industrial space, as vacancy rates edged up and rents declined across much of the District. Upstate New York office markets saw notable increases in vacancy rates, while the worsening trend in New York City's office market continued after a pause during the last reporting period. The industrial market also deteriorated, with vacancy rates increasing and rents softening from long-term highs seen during the summer.
Overall, construction contacts reported declining activity since the last report. Office construction dropped across the District. Multi-family construction also slowed, constrained by tight credit conditions and increased costs. Still, industrial construction continued to grow, with high volumes under construction and new space set to come to market in the fourth quarter of 2023 and early 2024.
Banking and Finance
Conditions in the broad finance sector weakened slightly during the latest reporting period. Small to medium-sized banks in the region overwhelmingly reported lower loan demand across all loan segments, including refinancing. While most banking contacts reported that credit standards were unchanged, a substantial number reported tightening standards for business and commercial loans. On balance, loan spreads narrowed, deposit rates rose higher, and delinquency rates edged up.
Community Perspectives
Homelessness has reached unprecedented levels in many parts of the District, driven by a shortage of affordable housing and the arrival of asylum seekers. Local governments are not able to meet the growing need for shelter, and the locations of new temporary shelters have been the subject of intense debate. Community planners, non-profit organizations, and government entities managing the homelessness crisis are considering new strategies to increase the supply of affordable housing units. While success has been limited, strategies have included repurposing government structures, incentivizing accessory dwelling units, and increasing tax incentives and private sector collaborations.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy