Question

Read the NY Fed's section and write a memo summarizing the details of the report.

Summary of Economic Activity

Economic activity in the Second District continued to grow at a moderate pace in the latest reporting period, and the labor market has remained tight. Input prices increased at a slightly faster pace, while selling prices continued to rise modestly. Fairly robust growth was reported in most service and distribution industries. Manufacturers reported that growth has slowed somewhat from its rapid pace during last summer and fall but remains fairly robust. Manufacturers also plan to increase capital spending substantially in 2018. Consumer spending has generally been flat. Housing markets have been steady overall, with continued weakness at the high end of both the sales and rental markets. Commercial real estate markets were also steady, on balance. Finally, banks reported a decline in loan demand, particularly from the household segment, while delinquency rates continued to decline across all loan categories.

Employment and Wages

The labor market has been steady and tight. Employment agencies generally report that labor market conditions have been strong, though one agency noted that the market is hard to gauge this early in the year— particularly due to the recent snowstorm. Businesses across all industries have had increasing trouble finding qualified workers, with some retailers struggling to find adequate seasonal staff. One large retail chain noted that they hired more holiday season workers than in

2016. Business contacts generally indicated that they continue to increase staffing levels modestly, though firms in the manufacturing and information sectors have scaled back hiring. However, hiring plans for the months ahead have grown increasingly strong.

Wages have accelerated modestly, and a growing proportion of firms said they expect to hike wages in the months ahead. The minimum wage across New York State rose by 7 to 18 percent, varying by location. An employment agency contact noted that recent New York City legislation restricting employers from asking about job candidates’ salary histories may boost salary offers overall.

Prices

Input prices have accelerated, according to contacts in the manufacturing, wholesale, transportation, education & health, and leisure & hospitality sectors. In other industries, however, cost increases have remained subdued. Selling prices continued to rise only modestly in most industry sectors and even edged down in the transportation and information sectors. Two exceptions have been in manufacturing and wholesale trade, where selling prices have picked up noticeably. Retailers mostly report that prices have been flat or up modestly, whereas prices for Broadway theater tickets have continued to increase at a roughly 20 percent pace. Looking ahead, the only sectors in which businesses planned noticeable price hikes were in wholesale trade and leisure & hospitality.

Consumer Spending

Retail contacts reported that holiday season sales were mixed but steady overall. Retailers in upstate New York indicated that customer traffic was brisk, while sales were more lackluster. On the other hand, a large retail chain reported that sales picked up in December and were ahead of plan and up modestly from a year ago. The ongoing shift from brick-and-mortar to online sales reportedly accelerated this past season. Retailers re- mained mildly optimistic about the outlook. Inventories were generally reported to be at satisfactory levels. Auto sales in upstate New York were steady to somewhat softer as 2017 drew to a close. Vehicle inventories were said to be in fairly good shape. Dealers continued to characterize retail and wholesale credit conditions as favorable.

Manufacturing and Distribution

Both manufacturers and wholesalers reported that activity grew at a fairly strong pace, though not as briskly as in the prior reporting period. Transportation firms, on the other hand, noted that activity picked up noticeably, growing at a robust pace. Looking ahead, manufacturers continued to express widespread optimism about the near-term outlook and plan to substantially ramp up capital spending in 2018. Wholesale distributors have become increasingly sanguine, while transportation firms remained moderately optimistic.

Services

Service-sector firms noted continued modest growth. Contacts in leisure & hospitality and professional & business services continued to report fairly widespread increases in activity, while information industry firms indicated some. Weakening in activity. Education & health service firms noted that activity picked up modestly after declining for a number of months. Service sector businesses were generally optimistic about the near-term outlook—particularly those in business & professional services and leisure & hospitality. Broadway theaters reported mixed results for December. Attendance was down about 7 percent from a year earlier, but revenues were up nearly 10 percent, reflecting a sizable increase in ticket prices.

Real Estate and Construction

The housing market across the District has been mixed but, on balance, stable. Real estate contacts in upstate. New York report that, despite a typical seasonal slowing in sales activity, strong demand and tight inventories continues to boost prices. In northern New Jersey, sales volume has been subdued and prices have been flat to up slightly. In the lower Hudson Valley and southwestern Connecticut, sales volume has plateaued at a high level; selling prices have risen moderately, except at the high end of the market, where they have languished. Long Island’s market has been somewhat more robust, with prices rising and some pickup in activity at the high end of the market. New York City’s sales market has been softer. Median prices of existing condos and co-ops have been flat overall—rising at the entry level, where inventories are lean, but declining at the high end, where there is a large supply.

New York City’s rental market has continued to soften, mainly at the high end. Landlord concessions on higher end rentals have remained prevalent, and more recently face rents have declined. A major real estate appraiser estimated that effective rents are down 5-7 percent from a year ago on higher end units but up modestly on smaller, entry-level apartments. In areas around New York City, there has been some concern that the new federal tax legislation, which limits deductions for mortgage interest and especially property and state income taxes, will weaken the housing market, especially the high end. However, this is seen as much less of a concern in upstate New York. Commercial real estate markets have been mixed but mostly steady overall. Office availability rates have climbed modestly in New York City, remained steady in Long Island and Fairfield County, and have edged down in northern New Jersey. Asking rents for office space have remained essentially flat. The industrial market has been more robust: vacancy rates have steadied at very low levels, and asking rents have risen briskly. The retail market, in contrast, has softened further, with vacancy rates rising, while asking rents have been flat to up slightly.

Banking and Finance

Small to medium-sized banks in the District reported weakening demand for consumer loans, residential mortgages, and C&I loans, but no change in demand for commercial mortgages. Bankers also reported a decrease in refinancing activity. Credit standards were tightened somewhat on commercial mortgages but left unchanged for other types of loans. Bankers reported rising loan spreads for commercial loans and mortgages. Finally, bankers reported continued improvement in delinquency rates across all loan categories. ■

Answer 1