Federal Reserve Bank of New York · Beige Book

Federal Reserve Bank of New York

Summary of Economic Activity

T1Economic activity in the Second District continued to contract at a modest pace in the latest reporting period, amidst ongoing but somewhat less severe worker shortages and supply disruptions. T2Business contacts have become more pessimistic about the near-term outlook. T3Increases in both selling prices and input prices have persisted, while wage growth has shown signs of slowing. Businesses continued to hire, albeit at a somewhat slower pace than in recent months, and there have been scattered reports of layoffs. T4Manufacturing activity weakened slightly. T5Consumer spending remained flat, while T6tourism has been increasingly robust. T7The home sales market continued to soften, and the rental market appears to have leveled off, as concerns about housing affordability persist.

Commercial real estate markets were slightly weaker overall, and T8construction activity continued to trend lower. T9Conditions in the broad finance sector deteriorated, and regional banks reported widening loan spreads and weakening loan demand.

Labor Markets

T10Employment continued to increase modestly, with some signs that labor shortages have eased a bit. One upstate New York employment agency noted that hiring activity has remained steady, led by solid demand for tech workers, while the supply of available job candidates has increased somewhat. A New York City agency also reported steady demand for workers overall; despite some layoff announcements, mostly in the finance sector, it has yet to see any significant increase in available candidates. Leisure & hospitality firms reported a marked pickup in hiring, and businesses in wholesale trade, information, and professional & business services reported that they continued to hire, on net. Firms in almost all industry sectors plan to add staff in the months ahead.

Contacts in the construction, transportation, and information industries reported some slowing in wage growth, as did employment agencies in both upstate and downstate New York. In the education & health and leisure & hospitality sectors, however, wage growth remains strong. Businesses across all sectors continue to project widespread wage hikes in the months ahead.

Prices

Most business contacts noted ongoing broad-based escalation in the prices they pay, at about the same pace as in the prior report. However, construction and transportation sector contacts indicated some slowing in the pace of cost increases. There were also scattered reports of price declines for certain products, such as lumber and fuel. Contacts across most major sectors expect continued widespread escalation in costs.

Selling price increases have slowed noticeably in the manufacturing sector but not in the service sector. A sizable and steady share of businesses in both sectors said they plan to raise prices in the months ahead.

Consumer Spending

Consumer spending has been little changed in recent weeks. Nonauto retailers reported that business has picked up slightly, buoyed by the post-summer return to the office and solid tourism, but are planning for tepid holiday season sales. One retail contact noted that the return to the office for some workers boosted sales of formal wear, while sales of home goods and casual apparel have been sluggish. Auto dealers in upstate New York reported that sales of both new and used vehicles were little changed at subdued levels in the latest reporting period due to a combination of lack of inventory and weaker demand. Inventory levels are expected to increase somewhat in the coming months. Consumer confidence across New York State remained fairly high in September.

Manufacturing and Distribution

Following a sharp decline in the prior reporting period, manufacturing activity declined slightly in recent weeks, and wholesale trade businesses reported a slight dip in activity for the first time this year. In contrast, transportation & warehousing firms reported a pickup in growth. Manufacturers reported that supply disruptions have diminished slightly, while contacts in the distribution industries report more marked improvement. Looking ahead, businesses in all these sectors have grown increasingly pessimistic and do not expect much of a pickup in the months ahead, though they do expect supply disruptions to ease further.

Services

Activity in the service sector has continued to weaken since the last report. Professional & business service firms report fairly widespread declines in activity, and contacts in the education & health and information sectors indicated slight weakening. Businesses in these sectors have become somewhat less optimistic about the near-term outlook and anticipate little or no growth in the months ahead.

In contrast, leisure & hospitality businesses reported a marked pickup in activity and expressed mild optimism about the outlook. Tourism in New York City has continued to show strength, buoyed by high attendance at recent major events—notably UN General Council, Climate Week, and Comicon. Hotel occupancy rates are at or above pre-pandemic levels, running around 90 percent in September, room rates are at record highs, and year-ahead bookings have steadily trended up. An industry expert noted that companies that have gone fully remote have increasingly been using conferences and trade shows to bring people together. Attendance at Broadway shows has climbed, and a record 19 new shows are opening this season.

Real Estate and Construction

The home sales market continued to cool in September, and the rental market showed signs of leveling off. Across the District, both buyer traffic and sales volume have diminished, bidding wars have reportedly become less prevalent, and price reductions have grown more common. In New York City, both sales volume and signed contracts have declined markedly over the last couple months but are at fairly normal levels. The inventory of homes on the market across New York City has remained mostly steady at low levels, while real estate contacts in upstate New York reported a slight increase.

Residential rental markets, which had been growing increasingly tight for most of the past year, appear to have leveled off in recent weeks, though at elevated levels. Rental vacancy rates across New York City have risen modestly.

Commercial real estate markets have been mostly flat, on balance, since the last report. Office markets were steady to slightly firmer, with vacancy rates little changed but rents rising modestly across most of the District. The industrial market, on the other hand, has weakened: vacancy rates rose, albeit from very low levels, and rents leveled off. Retail rents were flat, while vacancy rates rose modestly from already high levels.

Contacts in real estate and construction continued to report deteriorating business conditions and expressed increasingly widespread pessimism about the near-term outlook. New multi-family construction starts have been steady to somewhat lower, while new commercial construction has been moribund. There is a moderate volume of ongoing construction—both multi-family and commercial—but that too has trended down.

Banking and Finance

Regional bankers reported declines in loan demand across all loan segments, and almost all respondents indicated lower rates of refinancing activity. Credit standards generally remained unchanged across all loan categories. Loan spreads widened, most notably for business loans, and deposit rates continued to rise. Delinquency rates were unchanged across all loan categories.

Community Perspectives

Inflation remains a major concern among many people in the District. Community leaders worry that many residents will have difficulty affording heat and other utilities as winter approaches. Housing affordability and food insecurity remain ongoing concerns in the region, especially in light of rising utility costs. Communities, school districts, and tribal territories across some of the rural parts of the District indicated the need for adequate broadband access, though targeted programs have provided some relief.

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