Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District expanded slightly this reporting period, led by strong growth in the manufacturing sector. Employment grew slightly, and wages continued to rise moderately. Selling price increases remained modest, while input prices generally increased moderately. Consumer spending increased modestly this period. The housing market remained solid, with a pickup in sales in New York City. Commercial real estate markets steadied after a period of weakness. Activity in the broad finance sector was flat. With election uncertainty resolved, some contacts expected a bump in activity. Optimism improved.
Labor Markets
On balance, employment in the region grew slightly. Job gains in the region's education and health, wholesale trade, finance, and personal services sectors were partially offset by job losses in the information and professional and business services sectors, while headcount in the manufacturing sector held steady. Although layoffs generally remained limited in the region, the abrupt closure of a large tire manufacturer in Buffalo and some downsizing in the upstate New York healthcare sector resulted in some job losses.
Demand for workers continued to soften slightly. Hesitancy surrounding the presidential election had led to a pause in decision making, though contacts anticipated hiring would pick up again. Demand for financial services workers remained steady in both New York City and upstate New York. With the cooling that has occurred in the labor market, labor supply is now greater than labor demand, and workers are available in most industries. However, there were ongoing reports of difficulty finding skilled workers, particularly in the manufacturing sector.
Wage growth has held steady at a moderate pace. With more workers available, there is less pressure on employers to raise wages. Still, comparatively high wages in the District for lower-paid workers—amplified by New York State's minimum wage increases—have been a source of pressure for some firms. A number of firms noted that competition with other parts of the country where wages were comparatively lower made it challenging to operate in the District.
Prices
Selling price increases continued at a modest pace, while input price increases generally remained moderate. Businesses reported that the pace of both selling price and input price increases have now largely returned to what prevailed before the pandemic. Still, rising insurance costs continued to put pressure on firms in the region, and the cost of some food items has been increasing. Businesses expect little change in pricing pressures in the coming months.
Consumer Spending
Consumer spending increased modestly this period. One contact in the region noted that retailers anticipated strong sales over the holiday season, on the heels of solid activity during the fall. Auto dealers in upstate New York noted that sales activity bounced back after some softness during the previous reporting period. New car inventory has remained at a healthy level, and manufacturer incentives have helped dealers make sales. Although affordability of new cars remained a concern, an upstate New York contact reported that luxury brands have been performing particularly well. Used car sales remained steady, as the gap between new and used car pricing has made used cars more appealing for budget-conscious consumers. Credit conditions for auto loans remained somewhat tight, but credit is available for qualified borrowers.
Manufacturing and Distribution
Manufacturing activity grew strongly. Contacts reported a surge in both new orders and shipments. Wholesale and distribution-related firms saw modest increases in business activity. Though supply availability continued to worsen slightly, delivery times were unchanged. A shipping contact reported that ongoing global reductions in shipping capacity due to the disruptions of Red Sea routes has affected importers' ability to quickly increase inventories to desired levels. Manufacturers and distribution-related firms were optimistic that business conditions will improve in the months ahead.
Services
Activity in the service sector held steady. While businesses in most sectors reported little change, there were modest declines reported by retail firms and those in personal services and a small rise in activity reported by firms in professional and business services. Service firms were more upbeat about the economic outlook than they have been for several months.
Tourism activity in New York City has been strong during the fall season. Contacts with expertise in the New York City tourism sector reported that occupancy rates in New York City hotels have been high, with visits at or above pre-pandemic levels. Still, the restaurant and theatre industries have lagged slightly, with hybrid work arrangements contributing to reduced attendance by suburban visitors. The tourism outlook was more muted, with some uncertainty about potential impacts stemming from a recently passed hotel safety bill as well as uncertainty about future flows of visitors from abroad.
Real Estate and Construction
The housing market remained solid. Demand was strong in and around New York City and steady in upstate New York, but sales continued to be constrained by tight inventory. While there has been a modest improvement in inventory, fluctuations in interest rates are slightly tempering borrowers' plans to buy. Still, the New York City area saw a bump up in new signed contracts in recent weeks.
The rental market firmed slightly. Demand for rental housing rose somewhat, as rising mortgage rates pushed some potential buyers back to the rental market. Rents in New York City increased after a brief plateau, and vacancy rates have remained low. Outside of New York City, rental vacancy rates have risen slightly, and rents have stabilized at a high level.
Commercial real estate markets steadied after a period of weakness. The New York City office market saw a pickup in demand. Certain corridors in Midtown Manhattan were particularly desirable, and two large lease renewals—which included substantial expansions—additionally boosted demand. Office tenants seeking new space have been particularly selective about the owners' financials: with the pressure on commercial property owners, the long-term solvency of landlords has become a concern for lease-seekers. The northern New Jersey industrial market saw a small pickup in leasing in recent weeks.
Construction activity continued to decline at a moderate pace. Multiple contacts in the District reported slowdowns in the construction industry due to higher credit costs. Additionally, a contact in upstate New York reported that the costs of building—labor, lumber, and legislation—continued to restrain homebuilding activity.
Banking and Finance
Activity in the broad finance sector was flat. Small-to-medium-sized banks in the region reported that loan demand was little changed, though there was a slight increase in demand for commercial mortgages. Credit standards continued to tighten slightly for business loans and commercial mortgages. Deposit rates continued to decline. Delinquency rates rose for all loan types, particularly commercial mortgages. Contacts reported that elevated interest rate volatility was causing some concern among potential borrowers. Still, contacts in the finance industry more broadly were noticeably more optimistic about the outlook.
Community Perspectives
Amid rising community needs among school-aged children, the homeless and unsheltered, and individuals struggling with mental health and addiction, a new Medicaid funding mechanism was introduced to address social determinants of health through the development of social care networks. Through the program, social service providers provide integrated mental health, homeless and addiction-related care and services, as well as workforce development for the healthcare workforce to the community. Funds are now flowing to a broad range of recipients, though with mixed uptake by state.
For more information about District economic conditions visit: https://www.newyorkfed.org/regional-economy.