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Beige Book Report: New York

March 7, 2018

Summary of Economic Activity
Economic activity in the Second District grew at a modest pace in the latest reporting period, while the labor market has remained tight. Input price pressures intensified, while selling prices continued to rise modestly. Growth in the manufacturing and distribution industries slowed to a moderate pace, and activity declined in some service industries. Consumer spending has weakened somewhat, though this was partially attributed to unseasonably harsh weather across much of the District. Housing markets have been mixed, with the sales market a bit firmer but the rental market steady to softer, especially at the high end. Commercial real estate markets were also mixed, with strength in the industrial segment but some slackening in the office and retail markets. Industrial construction activity remained robust, while office construction remained sluggish and multi-family construction was mixed. Finally, banks reported slightly weaker loan demand from the household sector, and steady to lower delinquency rates.

Employment and Wages
The labor market has remained tight, while hiring activity has been steady. One employment agency in upstate New York noted that hiring was sluggish in January but picked up in February. A major New York City agency indicated that labor demand has remained brisk, while qualified candidates have been in increasingly short supply--particularly for jobs requiring technical skills. One contact noted that drug testing and background checks have disqualified many job applicants.

Business contacts in most industries indicated that they are expanding staff modestly, with the exception of retailers, who indicated that they have reduced staff slightly. Hiring plans for the months ahead have remained fairly strong.

Businesses in the service sector reported further acceleration in wages, and a sizable proportion of firms across most industries indicated plans to raise wages in the months ahead. A New York City agency reports that most new hiring involves recruiting candidates who are already employed, and that this has made businesses increasingly negotiable on wages. A number of contacts in industries such as health care, retail, and restaurants noted they have been squeezed by wage pressures, including the recent hike in New York State's minimum wage rates. Some businesses have refrained from raising wages that are already above the new minimum.

Input prices have accelerated sharply, according to contacts in most industry sectors, and a sizable number of businesses foresee further hikes in the months ahead. However, businesses generally report that they have raised their selling prices only modestly. Looking ahead, a growing proportion of businesses in retail and wholesale trade said that they planned to hike prices in the coming months.

Consumer Spending
Retail contacts reported that sales have weakened in early 2018, falling short of 2017 levels. Retailers in upstate New York indicated that customer traffic has been fairly robust in recent weeks, despite unusually cold and snowy weather, but that sales were down from a year earlier. The trend toward online shopping has continued to adversely affect many brick and mortar stores--particularly small businesses--though jewelry stores, nail salons, and other service providers have been less affected. Inventories were generally reported to be at satisfactory levels, and retailers were moderately optimistic about the near-term outlook.

New vehicle sales in upstate New York were reported to be steady to softer since the last report, while sales of used cars were mixed. Vehicle inventories were said to be in fairly good shape. Dealers continued to characterize retail and wholesale credit conditions as favorable.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) edged down but remained at a very high level in January.

Manufacturing and Distribution
Manufacturers and wholesalers reported that growth slowed to a moderate pace, while transportation firms indicated that activity leveled off following robust growth in late 2017. Looking ahead, manufacturers expressed increasingly widespread optimism about the near-term outlook and noted that they were planning on boosting capital spending. Contacts in wholesale distribution and transportation were moderately optimistic.

Reports from service-sector firms were mixed. Businesses in the information and leisure & hospitality industries reported that activity has declined, though part of this--at least for the latter--may be weather-related. Contacts in professional & business services and education & health again reported modest growth in activity.

Still, service sector businesses were generally optimistic about the near-term outlook, except in leisure & hospitality, where optimism was more subdued.

Broadway theaters reported that business was brisk in January, with attendance up more than 10 percent from a year earlier and revenues up more than 20 percent. However, both tapered off noticeably in February but were still up moderately from a year ago.

Real Estate and Construction
Housing markets across the District have been mixed, with the sales market picking up slightly but the rental market steady to softer. Real estate contacts in upstate New York reported that sales activity slowed in January, partly reflecting unseasonably harsh weather, though buyer traffic and listings picked up in February. In northern New Jersey, prices have been essentially flat, while sales volume declined slightly from a year ago. However, in Long Island, the Mid-Hudson Valley, and southwestern Connecticut, home sales have been fairly brisk, and prices have risen 3-5 percent.

New York City's co-op and condo market has also seen fairly brisk activity, though apartment prices have been flat overall--up modestly at the lower end but down at the high end of the market. The inventory of homes on the market was reported to be very thin throughout the District, except in Manhattan where it has been steady at a moderate level.

Rental markets have been mixed but, on balance, softer. New York City's rental market has weakened further, particularly at the high end. Effective rents have trended down, reflecting a combination of modestly declining face rents and rising landlord concessions. While these concessions have been common for high-end rentals for some time, they have recently been used on lower-priced units as well. However, rental markets in northern New Jersey, upstate New York, and the suburbs around New York City have held up better, with rents steady to up modestly.

Commercial real estate markets have been mixed. Office availability rates were steady to up slightly, while asking rents were mostly flat. The retail market has slackened more noticeably, especially in New York City, where vacancy rates have climbed to multi-year highs. In northern New Jersey and upstate New York, retail vacancies have been fairly stable. The industrial market, in contrast, has continued to strengthen, as availability rates have continued to decline throughout the District. Industrial rents in and around New York City and northern New Jersey have risen at more than a 10 percent pace, while rents in upstate New York have been stable.

Multi-family construction activity has remained brisk in northern New Jersey and has picked up across upstate New York, but has slowed in New York City. Office construction has been subdued, but industrial construction has been fairly robust.

Banking and Finance
Small to medium-sized banks in the District reported mixed demand for loans overall. Demand declined by a bit more than the seasonal norms for consumer loans and for residential mortgages but increased modestly for commercial mortgages. Refinancing activity also reportedly decreased. Bankers reported higher credit standards for C&I loans but unchanged standards for other types of loans. Finally, bankers reported lower delinquency rates for residential mortgages and unchanged delinquency rates across all other categories.

For more information about District economic conditions visit: www.newyorkfed.org/data-and-statistics/regional-data-center/index.html