Research

Not Surprisingly, NY Fed Reports Constricted Economy

Yet There Are Some Signs Of Hope

Keith Griffin

May 27, 2020

New York Federal Reserve Bank

New York, as the epicenter of the country’s COVID-19 pandemic, has seen its economy battered. That’s reflected in the latest Beige Book report from the Federal Reserve Bank. The previous report was issued on April 15 and reflected the beginning of the strains from the coronavirus.

For the New York Fed overview, the report says the economy contracted substantially again in the latest reporting period, as widespread closures and stay-at-home orders severely constrained business activity. Employment continued to decline, and wages were mixed but down modestly, on balance. Businesses reported that input prices rose slightly but selling prices decreased slightly.

The New York Fed’s coverage area includes New York state, the 12 northern counties of New Jersey, Fairfield County in Connecticut, Puerto Rico and the U.S. Virgin Islands.

Banking And Finance

Banks reported further moderate weakening in loan demand, tighter credit standards, and higher delinquency rates but also greater leniency on existing loans. Home sales and residential leasing activity have remained down sharply, as have commercial leasing and construction activity.

There was widespread interest, among businesses in all sectors, in the SBA Paycheck Protection Program loans, though some contacts expressed concerns about the program’s implementation and accessibility. Separately, small- to medium-sized banks across the New York district’s coverage area reported lower loan demand across all categories, but most dramatically from the commercial segment.

Banks reported tightening credit standards across all categories except consumer loans. Loan spreads narrowed on all categories except C&I loans. Respondents reported widespread declines in average deposit rates. Bankers reported higher delinquency rates but more lenient policies for delinquent accounts across all categories.

Real Estate and Construction

Home sales markets across the District have largely ground to a halt, with almost no new transactions and home viewing limited to virtual showings. The residential rental market has slowed but not quite as dramatically. A local real estate authority noted that new rental leasing in New York City was down about 70%, while renewals were up, and that there has been a pickup in demand for single-family home rentals outside the city.

A major appraiser noted that it’s almost impossible to gauge changes in prices and rents during this pandemic due to a dearth of transaction activity.

Commercial real estate markets across the district also remain moribund, with April marking a record low in new leasing activity and some companies pulling out of leases. A contact at a major commercial real estate firm estimated that only about 10% of tenants in both office and industrial space have fallen behind on rent, thus far, but that the corresponding rate for retail tenants is well over 50%. Even beyond that, for some mall retailers, rent is assessed a share of sales revenue.

More generally, real estate contacts were more optimistic than contacts in other sectors about the near-term outlook.

New construction starts have essentially remained at zero, and ongoing construction projects remained paused, except where considered essential. However, this is likely to pick up as states ease restrictions on construction activity in the days ahead.

Economy As A Whole

Activity fell in every sector, with particularly widespread declines in leisure & hospitality. However, business contacts tended to be less pessimistic than in the prior report about the near-term outlook, and those in the manufacturing, construction, real estate, and health services sectors expected modest improvement.

Consumer spending has fallen further, though there have been scattered reports of a nascent pickup in early May, as more parts of the economy have started to reopen. Tourism and travel have remained moribund, with hotels and airlines continuing to see very little business.

Read the Federal Reserve's Beige Book Report.

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