Federal Reserve Bank of New York
Summary of Economic Activity
On balance, economic activity in the Second District was little changed in the latest reporting period. Labor market conditions continued to moderate, with labor demand easing and the supply of workers increasing noticeably. Still, employment grew slightly, and wage gains remained moderate. Selling prices continued to increase at a modest pace. Manufacturing activity remained weak. Consumer spending was up slightly and remained solid, and tourism activity in New York City was steady. Housing markets remained solid, with some improvement in inventory across the District. Commercial real estate markets weakened further. Activity in the finance sector declined, with ongoing softening in loan demand and rising delinquency rates. Businesses anticipate little improvement in economic conditions in the months ahead.
Labor Markets
Labor market conditions continued to moderate. Labor demand has eased across the District, and contacts reported that it has gotten much easier to find qualified workers. Contacts at employment agencies noted some cooling in activity in both New York City and across upstate New York as businesses have been slower to make hiring decisions.
Still, on balance, employment continued to increase slightly, with gains in leisure and hospitality, personal services, retail, business services, and education and health partially offset by losses in manufacturing and construction. A contact at a payroll services firm reported a flattening of job growth for small-to-medium sized firms in the region. While contacts report there are no signs of major layoffs on the horizon, hiring plans have cooled.
Wage gains have remained moderate. However, some contacts indicated that increased worker availability and less competition among hiring firms have started to put downward pressure on wages. Further, pay increases received by those workers switching jobs have returned to a more normal range. Still, some contacts noted that the high-wage environment is making it challenging to remain in business.
Prices
Selling prices continued to increase at a modest pace. Consumers are reportedly pushing back on high prices by purchasing less quantity or switching to lower priced alternatives. Input prices continued to increase moderately, though service firms indicated their cost increases have slowed somewhat. Still, contacts in the region reported particularly steep increases for insurance, and multiple contacts expressed concern about rapidly rising freight costs, as well as the ensuing rise in the cost of goods, due to shipping disruptions in the Middle East. Businesses expect some easing in pricing pressures in the coming months.
Consumer Spending
Consumer spending was up slightly and remained solid. While spending on entertainment and recreation eased somewhat, retail spending saw a modest uptick. A large department store reported that sales in the region continued to outpace the nation and noted that shoppers are shifting their purchases toward higher-quality items and more seasonless apparel. Auto dealers in upstate New York reported that although auto sales have been solid, sales have slowed to a more modest pace, particularly in June as many dealers were hindered by a cyberattack on the software provider used to process auto sales. Dealers also remarked that tight credit conditions and high interest rates have restrained sales activity, particularly for those with less than prime credit scores. Sales of used cars have been steady, though there has been a shift toward older models with more mileage.
Manufacturing and Distribution
Manufacturing activity declined modestly, though shipments and new orders were flat after a period of decline earlier in the year. Transportation and warehousing firms also reported ongoing modest declines in activity, while wholesalers reported a moderate increase in activity. Supply availability was unchanged following a period of improvement, though delivery times shortened. Manufacturers expected economic conditions to improve modestly in the months ahead.
Services
On balance, activity in the service sector held steady. While activity increased in the information sector and edged up in the education and health sector, activity in the business services and personal services sectors declined. Optimism among service firms waned.
Tourism activity in New York City remained steady. A local tourism expert reported that food festivals, food halls, and international cuisines have been the inspiration for much summer tourism, and social media exposure is spurring many visits to New York City. However, sales at fast service restaurants are down among tourists, as many visitors purchased food and snacks from grocery stores, eschewing meals out. Rather than vacationing stateside, many Americans are traveling overseas and taking advantage of favorable exchange rates, detracting from tourism in New York City. Nonetheless, New York City's hotel room rates and occupancy rates remained among the highest in the nation.
Real Estate and Construction
Housing markets across the District remained solid. Of note, contacts report that the supply of homes available for sale has increased in much of the District. Still, inventory remains exceptionally low and has continued to restrain sales across the District. Home prices have continued to rise and with such limited inventory, desirable properties hitting the market are scooped up within days. The New York City suburbs were especially tight, and prices have risen to record levels due to strong demand and low supply. With inventory at more normal levels, Manhattan remains an exception, though prices remained elevated even as demand and sales activity were restrained.
The residential rental market strengthened further. Rents remained high even after a modest decline during this reporting period, and vacancy rates in and around New York City are extremely low. New leasing is up significantly compared to a year ago.
Commercial real estate markets weakened further as demand continued to soften. Office vacancy rates in New York City increased during the reporting period. Further, many tenants are putting space up on the sublease market instead of waiting for leases to expire as they work to right-size office footprints for hybrid work. While some legal and finance firms have continued to pursue office space, the tech sector has shed significant space, exerting a drag on overall demand. The industrial market continued to cool, with price-sensitive tenants seeking lower-quality space, leaving pricier new developments vacant. Rents in the northern New Jersey industrial market have begun to adjust downward, while rents in Long Island have held steady. Sales of commercial real estate fell to new lows, with pricing remaining elevated.
Construction contacts reported that activity edged down following a sharper contraction earlier in the year. Although there were high numbers of multifamily units under construction in Brooklyn and Queens, new construction generally remained muted across regions and segments.
Banking and Finance
Activity in the broad finance sector declined. Small- to medium-sized banks reported ongoing softening in loan demand and less refinancing activity. Credit standards tightened slightly for business loans and commercial mortgages but were unchanged for consumer loans and residential mortgages. Deposit rates held steady, and loan spreads narrowed. Delinquency rates rose, particularly for business loans and commercial mortgages.
Community Perspectives
Community leaders reported that housing costs and childcare availability have increasingly weighed on families in the District. Home prices, rents, and housing-related expenses such as insurance and property taxes have outpaced income gains making it difficult for many households to make ends meet. Further, the cost and availability of childcare have spurred workers in some parts of the District to forego employment opportunities to remain at home to care for children. Amid these challenges, housing advocates are optimistic about new legislation and policy proposals to adjust zoning and spur the availability of additional housing.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.