November 1, 2000
Federal Reserve Districts
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The Second District's economy has shown few, if any, signs of slowing since the last report, but price pressures have diminished. Retailers report that sales recovered somewhat in September, following a sluggish summer, and continued to improve in early October, running on or close to plan. Almost all retail contacts say that selling prices have declined a bit. Commercial real estate markets have tightened further throughout the New York City area; office rents continued to soar in Manhattan but have increased moderately in the suburbs. Housing markets remain strong, despite recent volatility in the financial markets. Regional manufacturers report that business conditions remain favorable, while commodity price pressures have abated. Finally, bankers report little change in loan demand, tightening credit standards on commercial loans, and falling delinquency rates.
On balance, selling prices have declined recently, reflecting an increasingly competitive retail environment; merchandise costs have been essentially flat, with falling prices for apparel and electronics offset by higher prices on household supplies, as well as health and beauty products. A few retailers indicate that rising electricity and utility costs are having an effect on their bottom line, but only one is being adversely affected by transportation costs. The general consensus is that, for the most part, rising transportation costs have been absorbed by vendors. Labor shortages persist, but retailers continue to hold the line on wage increases,
Construction and Real Estate
Housing markets across the District have remained strong since the last report. Albany-area realtors indicate that the local housing market remained strong in the third quarter, with both sales and prices up from a year earlier, despite a strong 1999 comparison. Markets in other parts of upstate New York remain mixed. Homebuilders in northern New Jersey say that recent volatility in financial markets has had no discernible effect on the housing market--at most, the queues for new custom construction have shortened a bit. An industry expert says that prices of both new and existing houses are "still going through the roof." In addition to the ongoing home construction and remodeling boom, demand for skilled construction workers in New Jersey is being boosted by a wave of new school construction that has begun recently and is expected to continue for a number of years.
Similarly, New York City's co-op and condo market shows few signs of weakening. In the third quarter, prices of prime Manhattan apartments continued to run roughly 20 percent higher than a year earlier, according to two leading real estate firms. However, activity slowed, as roughly 15 percent fewer apartments sold in the third quarter than a year earlier and the average listing time rose. More recently, local real estate contacts describe market conditions as relatively strong in the first half of October, with recent volatility in the stock market having no apparent effect. In general, apartment sales have picked up, after a summer lull, though the market is described as "less frenzied" than during the spring--bidding wars still occur, but they have become much less common than earlier in the year.
Other Business Activity
In the New York City area, purchasing managers continue to report sturdy growth in manufacturing activity, though gains were less widespread than in August. While purchasers note widespread price increases for energy, chemicals and paper, as well as a variety of service inputs, overall price pressures were reported to be less pronounced than in August. No information is available yet on the cost of paper for the upcoming World Champions' parade.
Rochester-area purchasers report continued improvement in business conditions, and ongoing increases in employment; they also note a marked diminution in price pressures, which had been fairly widespread for most of this year. Separately, despite ongoing layoffs at major local manufacturers, a Rochester-area employment agency reports persistent trouble filling job openings--they report an adequate pool of available workers but say firms are not paying enough to attract them.
Credit standards were tightened further on commercial and industrial borrowers, but were little changed for other customers. Lending rates were little changed for all types of loans, but average deposit rates rose, on net--50 percent of those surveyed report higher deposit rates than last time, while only 10 percent say they lowered rates. Delinquency rates fell for all loan categories, with the most notable decline in the consumer loan segment.