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Beige Book Report: New York

September 12, 2018

Summary of Economic Activity
Economic activity in the Second District expanded at a moderate pace in the latest reporting period. The labor market has continued to be tight, while wage growth has remained steady. Widespread increases in input prices persisted, but there have been signs of a slight deceleration in selling prices. Manufacturing activity continued to grow briskly, while businesses in most service and distribution industries reported more modest growth. Consumer spending was generally steady in recent weeks. Housing markets have softened somewhat, on balance, while commercial real estate markets have firmed slightly. Finally, banks reported continued growth in loan demand and little change in delinquency rates.

Employment and Wages 
The labor market has remained tight across the District. Employers continued to note trouble filling senior positions and finding technically skilled workers--particularly IT workers and engineers, as well as truck drivers and construction workers. One retail contact also noted difficulty in finding cashiers and sales associates. Some business contacts in upstate New York have faced challenges attracting skilled and specialized workers to rural areas and even smaller cities. A New York City employment agency noted that the labor market has remained tight, and anticipates brisk hiring to resume after Labor Day, following the usual summer lull.

Hiring activity has been steady overall but mixed by industry. Business contacts in manufacturing, wholesale trade, and finance continued to report fairly brisk hiring activity. In contrast, firms in retail trade, leisure & hospitality, and transportation indicated steady to slightly declining staffing levels, though they plan to add workers in the months ahead. A payroll service firm observed some further slowing in job growth at small businesses.

Businesses in most service industries indicated that wage pressures remain fairly widespread, though they have not intensified. A major New York State employer noted success in using non-wage benefits (e.g., vacation, flexible hours) to attract younger workers. Looking ahead, fewer businesses indicated planned wage increases than had been the case in recent months.

Businesses continued to report widespread hikes in input prices--particularly in manufacturing, wholesale trade, and education & health. Contacts in almost all sectors anticipated further increases in the months ahead, with a sizable number of contacts indicating that tariffs were driving up costs, particularly in the manufacturing sector.

As for selling prices, however, fewer businesses than in recent months said they were raising their prices--particularly in the wholesale trade sector. One notable exception was in the education & health industry, where contacts noted some acceleration in prices received. Retailers generally indicated that selling prices have remained stable, with one contact noting widespread discounting on remaining summer merchandise. A number of wholesale trade and transportation contacts said they planned to hike prices in the months ahead.

Consumer Spending
Retail sales were mostly steady in July and August. While somewhat more retail contacts indicated declining than increasing sales, a major retail chain noted that sales rose and were above plan in both months, running 2-4 percent ahead of comparable 2017 levels. Sales at New York City stores slowed slightly, but were still up moderately from a year earlier. Retailers in upstate New York reported that sales were mostly soft in July but picked up in August.

Auto dealers in upstate New York reported that new vehicle sales were fairly soft in July, running below year-ago levels, but showed signs of picking up in August. New vehicle inventories remained at or above desired levels. Meanwhile, sales of used vehicles strengthened further. Dealers generally characterized retail and wholesale credit conditions as being in good shape, though one contact reported some pullback toward the lower end of the retail credit market.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) retreated from a cyclical high, based on the Conference Board's survey, though the public's assessment of the job market climbed to new highs.

Manufacturing and Distribution
Manufacturers indicated that activity continued to expand at a brisk pace since the last report. Transportation firms reported modest growth, while wholesale distributors noted a typical seasonal slowdown in growth. Regarding the near-term business outlook, wholesale distributors and manufacturers expressed ongoing optimism, while transportation industry contacts have become less upbeat. A sizable number of contacts in these sectors noted that recent hikes in tariffs have raised their overall input costs, and some have expressed concern about the effects of changes in trade policy on various aspects of their business. One utility firm noted that tariffs on some construction materials may force them to scale back capital investment a bit.

Service-sector firms reported mixed results in the latest reporting period. Businesses in the education & health service sector noted a pickup in activity, whereas contacts in information and professional & business services indicated that activity continued to expand at a subdued pace. Businesses in leisure & hospitality reported a slight dip in activity, though tourism in New York showed continued strength, as both hotels and Broadway theaters reported brisk business. Looking ahead, leisure & hospitality businesses expressed growing optimism about the near-term outlook, and contacts in the service sector generally remained sanguine. Information industry contacts were noticeably less upbeat than in the prior report.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, softer since the last report. Home sales activity dropped off sharply in New York City--especially in Manhattan. Selling prices have remained mostly flat, though one real estate expert interpreted the drop-off in sales as suggesting a decline in underlying values and partly attributes this to the new federal tax law. In contrast, housing markets in parts of upstate New York have shown continued strength. One contact reported growing interest among homebuyers in neighborhoods of Buffalo and Niagara Falls previously considered less desirable. There was also said to be rising interest in renovating abandoned buildings in Albany, Troy, and Schenectady for both homeownership and mixed-use development. The inventory of unsold homes has remained very low across the District, though it has risen in New York City.

The apartment rental market has been mixed but generally steady. Rents have continued to drift down in Manhattan but have been steady to somewhat higher in Brooklyn and Queens. Vacancy rates have remained very low, as landlord concessions have remained widespread but not risen. Outside New York City, apartment rents have continued to trend up modestly, running 2-3 percent ahead of a year earlier.

Commercial real estate markets have firmed slightly. Office availability rates declined modestly in northern New Jersey, Westchester, and Fairfield counties. Office markets were steady in Manhattan and upstate New York, but slackened modestly in Long Island. The market for industrial space continued to strengthen, particularly in northern New Jersey, where availability rates fell to multi-year lows and rents continued to climb, posting double-digit percentage gains from a year ago.

New multi-family construction starts reportedly slipped in recent weeks. New office construction has picked up slightly but remains subdued, while there has been very little new industrial construction. In all these categories, however, there continues to be a good deal of ongoing construction in progress.

Banking and Finance
Financial services firms reported increasingly robust growth in activity but were somewhat less optimistic regarding the near-term outlook. Small to medium-sized banks reported higher demand for consumer loans and residential mortgages, but flat demand for commercial mortgages and C&I loans. Refinancing activity was reported to be steady. Bankers reported tighter credit standards for C&I loans, lower loan spreads across all categories, and widespread increases in average deposit rates. Delinquency rates fell across all loan categories.

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