Federal Reserve Bank of New York · Beige Book

Federal Reserve Bank of New York

Summary of Economic Activity

Economic activity in the Second District held steady in the latest reporting period. While contacts noted some slowing in hiring, T1labor market conditions generally remained solid, with ongoing modest employment gains and steady wage growth. T2Inflationary pressures increased slightly after easing much of the past year. Supply availability continued to improve, though manufacturing activity contracted. T3Consumer spending grew steadily, led by spending on experiences, while spending on goods sagged. T4Tourism activity in New York City continued to grow through late summer, inching back toward pre-pandemic levels. Exceptionally low inventory continued to restrain home sales. T5Commercial real estate markets were mostly unchanged, with some further weakening in the office sector.

Conditions in the broad finance sector stabilized following a period of pronounced weakness, though, on balance, loan demand continued to decline and delinquency rates edged up. Looking ahead, businesses have become somewhat more optimistic about the economic outlook.

Labor Markets

Labor market conditions generally remained solid, though contacts noted some slowing in hiring. Overall, employment continued to increase modestly, with stronger gains seen among wholesalers, personal service firms, and businesses in education & health, while hiring remained weak among manufacturers. Contacts generally reported ongoing low attrition rates as workers remained nervous about switching jobs in the current economic environment.

While remote work has remained prevalent in the region's service sector, several contacts reported that post-pandemic return-to-office requirements are increasingly a source of friction in hiring and job negotiations. Still, employers offering remote work noted improved ease of hiring and worker retention.

Business contacts generally reported ongoing steady wage growth, though a large payroll firm in upstate New York indicated that the pace of growth has moderated somewhat as labor market conditions have become more normalized and worker shortages have eased. Still, the supply of workers remains a challenge in the region, especially for the leisure & hospitality sector. On net, businesses in most sectors plan to increase employment in the coming months.

Prices

Inflationary pressures increased slightly after easing for much of the past year. Both service firms and manufacturers reported that input price increases picked up a bit in recent weeks. One contact noted substantial increases in insurance costs. Selling prices have increased at a steady pace for both service firms and manufacturers, though contacts at retail businesses reported that selling prices had flattened and expect little change in the months ahead. Contacts noted that consumers have become more price-conscious, and now price is often the most important factor in purchasing decisions.

Consumer Spending

Consumer spending increased steadily in the latest reporting period. Spending on travel, entertainment, and restaurants & bars has continued to rise since the last report, though department store contacts noted goods sales have sagged, particularly for seasonal apparel. Auto dealers in upstate New York reported that new car sales edged up slightly as more inventory became available. With solid lingering pent-up demand, new inventory has been turned over quickly. Even so, some auto manufacturers have continued to use targeted incentives—subsidized financing in particular—to boost sales of certain models. Used car sales increased in recent weeks spurred by softening prices.

Manufacturing and Distribution

T6Manufacturing activity contracted during the latest reporting period. Supply availability continued to improve, delivery times held steady, and inventories declined. Businesses in transportation & warehousing also reported declining activity, while wholesalers reported that activity increased slightly. Manufacturing and distribution firms have become notably more optimistic about the economic outlook.

Services

Service sector activity has been mixed. Businesses in the information, education & health, and leisure & hospitality sectors reported increasing activity, while contacts in the business services and personal services sectors saw activity decline. Looking ahead, service firms were fairly optimistic that conditions would improve in the coming months.

Tourism activity in New York City continued to grow slowly through late summer, inching back toward pre-pandemic levels. While the number of travelers is nearly back to normal, tourists are substituting lower-cost experiences for premium ones — such as partaking in casual dining instead of fine dining or staying at reduced-service hotels. Meanwhile, some hotels and restaurants are making do with fewer workers by reducing service levels and business hours. Looking ahead, China's recent decision to remove pandemic-era restrictions on group travel to the United States is expected to boost tourism in New York City.

Real Estate and Construction

T7Exceptionally low inventory has continued to restrain home sales activity across the District, pushing up prices and frustrating potential buyers. With few properties to choose from, bidding wars remained prevalent in upstate New York and in the suburbs around New York City. By contrast, inventory hovered near historic norms in Manhattan, leaving buyers less pressured. Still, home prices were steady to up slightly, and affordability was at a long-time low. Contacts noted some concern that the resumption of student loan payments in October will make it even more difficult for some to afford purchasing a home.

The recent rise in mortgage rates has also pushed some potential buyers to the sidelines. Real estate contacts reported that homeowners with low mortgage rates do not want to move, and the resulting lack of inventory leaves little choice for potential sellers, making low inventory self-reinforcing.

Residential rental markets continued to tighten. In New York City, rents climbed to new highs, though a decline in new lease activity during the high season suggests some slowing ahead, even amid historically low vacancy rates. Rents also continued to rise in upstate New York.

Commercial real estate markets were mostly unchanged. The office market deteriorated slightly, with modest increases in vacancy rates and declines in rents. New York City's retail market was little changed in the last reporting period, with steady vacancy rates, rents, and leasing activity. While the industrial market generally remained firm, rents declined and vacancies climbed in northern New Jersey.

Overall, construction contacts reported that conditions stabilized over the summer. Office construction in New York City continued to slow, but office construction in upstate New York and northern New Jersey remained at a moderate pace. Industrial construction activity was strong and steady. Much of the District saw increased multi-family residential construction starts, but in upstate New York activity was minimal, with no construction starts and a slight decline in units under construction.

Banking and Finance

T8Conditions in the broad finance sector stabilized following a period of pronounced weakness. T9Small to medium-sized banks in the District reported lower loan demand in all loan categories. Bankers were split on the changes in loan interest spreads over the past two months, with as many reporting widening spreads as reporting narrowing spreads. T10On balance, banks reported tighter credit standards, higher deposits, and rising delinquency rates.

Community Perspectives

Community contacts reported that rising numbers of asylum seekers were increasing the need for the provision of social services and education across the District. Pressures were particularly pronounced on New York City's emergency shelter system. The number of individuals seeking shelter in New York City has nearly doubled in a year due to growing numbers of migrant families. The logistics and budget implications of providing migrants housing, social, and education services have been challenging for policymakers and community organizations in the District.

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