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New York: November 2019

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Beige Book Report: New York

November 27, 2019

Summary of Economic Activity
There has been little or no growth in the Second District economy in the latest reporting period. The labor market remained tight, with slowing hiring activity and wage growth. Input prices decelerated, while selling prices continued to rise at a modest pace. Manufacturing activity was essentially flat, while business in the transportation and distribution sectors grew modestly. However, most service industries reported some softening in business conditions. Business contacts remained fairly restrained in their optimism about the near-term outlook. Consumer spending was mixed, with strength in auto sales but ongoing weakness in traditional retail. Tourism has remained robust. Housing markets have been softer, on balance, though the residential rental market has held up fairly well. Commercial real estate markets have weakened, and new commercial construction has slowed. Finally, finance sector contacts generally reported softening conditions, though banks reported increased demand for mortgage loans.

Employment and Wages
The labor market has remained tight across the District, but hiring has slowed. Business contacts have continued to report trouble finding workers to fill a wide range of jobs such as software developers and engineers, accountants, retail clerks, mechanical engineers, machinists and welders. Two major employment agencies noted that almost all job candidates are already working, and that many are reluctant to switch jobs, particularly at this time in the year.

Businesses overall continued to report little change in staffing levels, as job creation slowed. Contacts in manufacturing, education & health, and leisure & hospitality reported modest net hiring; however, finance, real estate, and wholesale trade firms indicated modest declines in employment, on balance. Looking ahead to the next six months, businesses in manufacturing and most service sectors still planned on adding to staff; however, businesses in the information, finance, and transportation sectors projected modest declines in employment. Businesses overall reported that wage growth has moderated slightly in the latest reporting period, though contacts in leisure & hospitality and education & health reported more widespread increases.

Businesses in most sectors reported that input costs decelerated, while selling prices continued to rise at a modest pace. However, contacts in wholesale and retail trade have continued to note more widespread escalation in the prices they pay. Contacts in the leisure & hospitality sector, however, have continued to report steady to declining prices. Prices for Broadway theater tickets, for example, have edged down and are slightly lower than a year ago. Looking ahead, there was not much of a change in businesses' inclination to raise prices in the months ahead.

Consumer Spending
Retailers report that sales have been steady to softer since the last report and were lukewarm in their expectations for the near-term outlook. A number of retail contacts expressed concern about the general business climate, and a sizable number have scaled back capital spending plans. Upstate New York retailers noted some pickup in shopper traffic and sales activity, reflecting heavier and earlier sales promotion, but note that the pace of growth remains modest. Most stores indicated that inventories were in good shape heading into the holiday season.

Sales of both new and used vehicles have remained solid in recent weeks, running above year-earlier levels, according to dealers in upstate New York. Dealers indicated that manufacturer incentives and year-end changeovers have boosted sales. Consumer credit conditions have remained in good shape.

Manufacturing and Distribution
Manufacturers reported that business activity has remained flat. On the distribution side, wholesalers noted a significant rebound in activity, while transportation contacts said that activity grew modestly.

Looking ahead, manufacturers, wholesalers, and transportation firms indicated that they anticipate modest growth in the months ahead, on balance. Contacts in all these sectors have expressed ongoing concern about tariffs, trade tensions, and related uncertainty, as well as the rising minimum wage in New York.

Businesses across almost all service industries reported some weakening in activity, on balance, since the last report. A notable exception has been in the leisure & hospitality sector, where contacts noted moderate growth in activity. Broadway theaters reported that attendance was fairly sturdy in October but dropped off a bit in the first half of November, as both attendance and revenues slipped below comparable year-ago levels.

Other service industries generally reported softening activity—particularly in the information and finance sectors. Professional & business and education & health service firms reported some modest weakening in conditions. Service firms, even those in leisure & hospitality, have grown somewhat less optimistic about the near-term outlook.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, weaker in the latest reporting period. Prices of New York City condos and co-ops have continued to trend lower and are now running moderately below comparable 2018 levels, with steeper declines at the high end of the market and in Manhattan. A local real estate expert noted a precipitous drop in the share of cash purchases at the higher end of the market, which is seen as a signal that investors have largely left the market. The inventory of existing homes has continued to climb to a fairly high level in Manhattan but less so in the outer boroughs. Housing markets in the suburban areas around New York have been more stable, with prices still rising moderately in most areas and inventories generally stable. Similarly, in upstate New York, the sales market has remained strong, with inventories steady at very low levels, prices still rising, and bidding wars still fairly commonplace in the more sought-after areas.

The residential rental market has strengthened further. While Manhattan rents have leveled off, rents across much of the city and metro area have continued to rise at a moderate pace—and at a somewhat faster pace at the high end of the market, reflecting a shift in demand away from owning. Rental vacancy rates have edged up but remain quite low across New York City.

Commercial real estate markets across the District have generally weakened in the latest reporting period. Office rents have been mostly flat, while availability rates have climbed modestly in most areas, with leasing activity steady to slower. Industrial markets have been mixed: rents have continued to trend up, though the pace has slowed, and availability rates have been flat to up slightly. The market for retail space has weakened further, even as the holiday shopping season draws near, with rents flat and vacancy rates at multi-year highs.

New multi-family construction starts have held steady across the District, while the volume of ongoing multi-family construction has remained fairly brisk. New office and industrial construction has continued to weaken modestly.

Banking and Finance
Financial sector contacts generally reported softer business conditions and expressed concern about a deteriorating business climate. Bankers reported higher demand for residential and commercial mortgages, but unchanged demand for consumer and C&I loans. Credit standards were said to be unchanged across all major categories. Loan spreads narrowed on all categories. Contacts also reported further decreases in average deposit rates. Finally, bankers reported stable delinquency rates across all loan categories.

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