September 5, 2007
Federal Reserve Districts
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The Second District's economy has continued to expand since the last report, while price pressures have been stable. Housing markets remain mixed: as in the last report, New York City's apartment rental and purchase markets are both tight; however, the sales market in surrounding suburbs, as well as much of upstate New York, has stayed sluggish. Office markets in the New York City area are described as steady since the last report. Bankers' reports received in late August reveal some further weakening in loan demand--particularly for consumer loans--as well as some further tightening in credit standards, but little or no change in delinquency rates. The labor market remains tight and hiring activity is characterized as steady and strong; overall, businesses in the District continue to expect a modest increase in their employment levels, on balance, over the next six months. Manufacturers report ongoing expansion in activity in July and August; while they note some leveling off in selling prices, a sizable proportion still plan to hike prices over the next six months. Tourism has continued to expand briskly. Retailers indicate that sales were slightly below plan in July but on or ahead of plan in the first half of August; inventories are said to be at favorable levels, and selling prices are reported to be steady.
Tourism activity in New York City has continued to expand briskly since the last report. Hotels remained at close to full capacity in July and early August, with room rates running 10 to 15 percent higher than a year ago. Broadway theaters report increased strength in business in July and early August, with attendance up 10 percent and revenues up 15 percent from a year earlier--a bit stronger than in recent months.
Construction and Real Estate
Housing markets have remained mixed since the last report. New Jersey homebuilders report that the market has taken on a weaker tone in recent weeks--largely attributed to nervousness among buyers and somewhat tighter mortgage lending standards. Sales are reported to have slowed more for existing than new homes, reflecting sellers' reluctance to lower asking prices. New York State Realtors report that the median selling price for existing single-family houses was down 5 percent from a year earlier in July, while the number of transactions slipped 2½ percent.
In New York City, however, market conditions remained strong in July and early August, with no contacts reporting any significant impact, thus far, from the recent developments in financial markets. Sales of Manhattan apartments were brisk in July, while prices were reported to be steady to up about 5 percent from a year ago. Real estate contacts report no discernible weakening in the market in recent weeks; however, August is typically a quiet month and, thus, difficult to gauge. The number of listings (inventory) has declined fairly steadily since the start of the year and remained low through the first three weeks of August. One contact does report a steady increase in the volume of foreclosures over the past year but from very low levels. New York City's rental market remained especially tight in Manhattan as well as nearby areas: two contacts report that rents are up 10 to 15 percent from a year ago on market-rate apartments; moreover, the inventory of units on the market (vacancy rate) remains exceptionally low, especially for larger units. Contacts indicate that demand remained brisk in the first three weeks of August.
Other Business Activity
A major New York City employment agency, specializing in office jobs, reports that the labor market has remained tight in July and the first half of August, and that hiring activity by its clients--dominated by legal and financial firms but not including mortgage lenders--has shown no signs of slowing since the last report. Wages are reported to be steady, after sharp escalation earlier this year, but are still up quite a bit from a year ago. There is a persistently short supply of qualified workers.
Bankers report some increase in loan rates for consumer credit but no change in rates for commercial credit. Most noticeably, roughly one in two bankers reports a rate increase for residential mortgages. Bankers also reported a higher average deposit rate. Reports on the spreads of loan rates over cost of funds were also split. Despite tighter supply, bankers indicated declining spreads for consumer loans and commercial mortgages, and no change for the remaining categories. Finally, bankers reported little or no change in delinquencies across all loan categories.