Federal Reserve Bank of New York · Beige Book

Federal Reserve Bank of New York

Summary of Economic Activity

Economic activity in the Second District was little changed in the latest reporting period. The labor market has remained solid: employment increased slightly despite ongoing difficulty finding workers, wages continued to increase, and many businesses plan to add staff in the months ahead. Inflationary pressures eased somewhat but remained widespread. Supply availability, while still constrained, continued to improve, and goods production picked up noticeably. Consumer spending was flat to up slightly in recent weeks, while tourism has continued to strengthen. T1The home sales market has continued to pick up and the rental market has been steady. On balance, commercial real estate markets were mostly unchanged. T2Conditions in the broad finance sector deteriorated sharply, coinciding with recent stress in the banking sector.

Regional banks continued to report widespread declines in loan demand, ongoing credit tightening, and modestly rising mortgage delinquency rates. Amid heightened uncertainty, most businesses do not expect economic conditions to improve in the coming months.

Labor Markets

T3Labor market conditions have remained solid. On balance, employment increased slightly in the latest reporting period despite ongoing difficulty finding workers across the region. However, businesses in the manufacturing, construction, and education & health sectors indicated that employment declined in recent weeks. Even so, contacts at two major employment agencies noted ongoing strong labor demand and continued to indicate that worries of widespread weakening in the labor market have not materialized. Indeed, thus far, layoffs have been concentrated in large companies, and mostly among their workers who are outside of the region. Further, a New York City employment agency indicated that the broader local labor market has yet to experience noticeable ripple effects from recent stress in the banking sector. Looking ahead, on net, businesses plan to add staff in the coming months.

Wages continued to increase, though at a somewhat slower pace than earlier in the year as major compensation adjustments tend to be concentrated at the beginning of the year for most workers. Businesses expect wage increases to continue to moderate.

Prices

T4Inflationary pressures moderated somewhat but remained widespread. Businesses reported that the pace of input price increases slowed slightly in recent weeks. Still, the costs of transportation, energy, and many raw materials remained high. The pace of selling price increases also eased somewhat, especially in the service sector though not among retailers or leisure & hospitality firms. Fewer businesses than in the last report expect prices to increase.

Consumer Spending

T5Consumer spending was flat to up slightly in recent weeks as consumers continued to face pressure from high inflation and heightened uncertainty. Nonauto retailers indicated that business was sluggish and down slightly in recent weeks, while spending on travel-related services, recreation, and in restaurants and bars has remained strong. Auto dealers in upstate New York reported that sales of new vehicles were steady with ongoing improvements in inventory levels, while sales of used vehicles firmed. Consumer confidence in the region rose to a nearly two-year high in March, driven by growing optimism among New York City residents.

Manufacturing and Distribution

T6Manufacturing activity picked up in recent weeks, following several months of contraction. New orders and shipments surged, and businesses indicated that supply availability, while still constrained, continued to improve. However, businesses in wholesale distribution and transportation & warehousing reported declining activity. While manufacturers remain mildly optimistic, distribution-related businesses have turned pessimistic.

Services

On balance, service sector activity rose modestly, though conditions varied across sectors. Personal services businesses reported moderate weakening, while providers of business & professional, education & health, and leisure & hospitality services noted some growth in activity after a sustained period of weakness. Businesses in the service sector generally expect little change in economic conditions in the months ahead.

T7Tourism activity in New York City continued to strengthen and is nearing pre-pandemic levels. While domestic travel remains strong, international travel continues to lag. Visitors from Asia—especially China—remain noticeably absent, in part due to long wait times for visas. Though business travel has yet to fully bounce back, it has picked up beyond expectations in recent weeks. Demand for hotel rooms continued to increase with advance bookings trending up as people have grown more comfortable traveling. Even with the steady uptick in visitors to New York City, the reduction in daily commuters continues to exert pressure on the City's retailers and entertainment-related businesses.

Real Estate and Construction

Residential sales have picked up with the start of the spring selling season, with prices steady at a high level. Sales activity in and around New York City has continued to increase beyond the seasonal norm. By contrast, real estate contacts in upstate New York indicated that the spring selling season has gotten off to a slower start in part due to unseasonably harsh weather, though demand remains strong for homes in the middle of the region's price range. While listings have increased, the inventory of available homes has remained exceptionally low across the region except in Manhattan. T8Contacts pointed to heightened uncertainty and the prevalence of homeowners with mortgages locked in at historically low rates as key factors keeping some people from listing their homes and moving.

Residential rental markets have been steady. After peaking last summer, rents including concessions have been little changed near record highs in Manhattan, Brooklyn, and Queens and rental vacancy rates have remained exceptionally low as people gradually continue to return to New York City. Rents have also plateaued at a high level in much of upstate New York.

Commercial real estate markets were little changed in recent weeks. Office vacancy rates edged up slightly in and around New York City and were steady across upstate New York, while office rents were mostly flat across the District. New York City's retail market weakened somewhat, with vacancy rates up slightly and rents trending down. Vacancy rates remained at low levels in the industrial market and rents trended up modestly.

Overall, construction contacts reported weakening conditions in March and early April. Office construction remained steady at a low level in most of the District, though there were some new starts in northern New Jersey, Long Island, and upstate New York. Industrial construction was solid, but little changed across the District. Multi-family residential starts picked up from low levels in Manhattan and parts of upstate New York but remained weak elsewhere.

Banking and Finance

Conditions in the broad finance sector deteriorated sharply coinciding with recent stress in the banking sector. Small to medium-sized banks in the District reported widespread declines in loan demand across all loan segments. T9Credit standards tightened noticeably for all loan types, and loan spreads continued to narrow. Deposit rates moved higher. Finally, delinquency rates edged up on residential and commercial mortgages.

Community Perspectives

Community leaders noted that economic challenges for lower-income families have been increasing as pandemic-era assistance programs wind down. With the temporary boost in SNAP benefits and Medicaid supplementation being phased out, community organizations are stepping up their efforts to support the increase in vulnerable families facing difficulty affording food and healthcare. Contacts expressed concern that state and local budgetary pressures may impede the provision of community services. Labor shortages and understaffing in the not-for-profit sector have just begun to ease, with increases in the number and quality of applicants.

For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy