July 28, 2004 Federal Reserve Districts Second District--New York

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Economic growth in the Second District appears to have moderated somewhat since the last report, though most sectors remain buoyant. While input price pressures persist, prices of most consumer goods and services have advanced at a relatively modest pace. The labor market has shown further improvement, though to a lesser degree than earlier in the year. Retailers report that sales softened in June and early July, while selling prices were up slightly, due to less discounting. Business surveys conducted in June and early July suggest some renewed strength in manufacturing-sector activity, and continued upward pressure on input costs. The housing market remains strong, though not quite as robust as the spring--the sales market has moderated a bit, while the rental market has strengthened. Residential construction remains firm, while construction costs have moderated somewhat. Office markets in the New York City area were mixed at mid-year. Tourism has been particularly robust in recent months, with brisk gains in air travel, hotel occupancy, and theater attendance. Finally, bankers report across-the-board declines in delinquency rates, slight weakening in household loan demand, but further increases in demand for business loans. Consumer Spending Retail sales, which had been running well ahead of plan during the Spring, slowed noticeably in June and early July: on a year-over-year basis, same-store sales gains were mostly in the range of 1 percent to 3 percent in the more recent period. Contacts attribute the slowing, in part, to unseasonably cool weather; however, most also characterize the brisk pace of sales earlier this year as unsustainable and indicate that lean inventories of clearance merchandise have hampered sales recently. In fact, most retail contacts maintain that inventories are still on the lean side. Most contacts note that sales of home goods have softened further, though one describes this category as still strong. In general, retail contacts indicate that effective selling prices are somewhat higher than a year ago, due to fewer and smaller markdowns. Retailers report little in the way of wage pressures, and most continue to indicate that rising energy costs have little impact on total costs. Consumer confidence was, again, little changed in June. Based on Siena College's survey of New York State residents, confidence edged down last month, led by a dip in the New York City area. At the same time, the Conference Board's survey of Middle Atlantic state (NY, NJ, PA) residents shows confidence rising modestly in June, reversing a modest dip in May. Construction and Real Estate Housing markets have moderated somewhat since the last report, though they are still described as strong, particularly in and around New York City. Realtors in all five boroughs report that home prices were up well over 10 percent in the second quarter, compared with a year earlier. A Manhattan industry contact notes that that market for co-ops and condos was fairly robust in June, though less "frenzied" than in April, when low inventories and strong demand sparked numerous bidding wars. Manhattan's rental market, in contrast, has continued to strengthen: one contact notes that a growing number of prospective buyers have opted to rent in recent weeks and reports that rental rates continue to rebound and are now roughly on par with a year ago. New Jersey homebuilders report that demand continues to outstrip supply, keeping prices firm; input costs remain high but are said to have abated somewhat since the last report. Office markets in the New York City area have been mixed. Vacancy rates have edged down further in Long Island, Fairfield County (Connecticut), and both Midtown and Lower Manhattan. In contrast, northern New Jersey's vacancy rate reportedly ended the second quarter at almost 18 percent, the highest level in nearly a decade. Westchester County's rate rose moderately but was still lower than a year ago. Other Business Activity A major New York City employment agency reports continued improvement in the labor market in June and early July, though at a more gradual pace than in the last report. There is reported to have been some renewed softening in demand for IT workers, though this may be partly due to a seasonal slowdown. Our latest monthly survey of New York State manufacturers indicates further strength in business conditions in early July; continued widespread increases in input costs were noted, but only about one in four firms indicate that they have raised their selling prices. Similarly, June surveys of purchasing managers in both the New York City and Buffalo areas indicate improved business conditions in June. Buffalo purchasers report increasingly widespread gains in both production and new orders, while New York purchasers indicate a resumption in manufacturing sector growth, following a May lull. Purchasers in both areas again report increasing input prices, though these were a bit less widespread than in recent months. Tourism-related industries continue to turn in very strong results. Airport passenger traffic, year-to-date, is up 15 percent from 2003 levels at New York City area airports and up 10 percent at both Buffalo-Niagara and Greater Rochester airports. Manhattan hotels report that revenue was up more than 20 percent from a year earlier in June, reflecting a 7 percent increase in occupancies and a 14 percent rise in average room rates. Broadway theaters report a further acceleration in business in June and early July, as total revenues were up roughly 12 percent from a year earlier; virtually all of the increase reflects higher attendance, while the average ticket price was little changed. Financial Developments Small to medium-sized banks in the district report mixed demand for loans in the latest survey. Loan demand rose slightly in the commercial segments but declined slightly in the consumer category. There was a continued widespread decline in demand for home mortgages: nearly two-thirds of bankers report lower demand, while only 16 percent report higher demand. Refinancing activity decreased, according to 52 percent of bankers, with 21 percent reporting an increase. Loan rates increased across all categories, with the commercial and industrial segment loan rates registering the most widespread increase. Average deposit rates are reported to be steady to higher. Credit standards remained unchanged according to virtually all respondents. Finally, bankers report lower delinquency rates across all loan categories. Return to top Boston Philadelphia