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Federal Reserve Districts


Second District--New York

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The Second District's economy has shown some further signs of strengthening since the last report, despite some apparent slowing in the housing market; input price increases have become more widespread. In general, business contacts report ongoing improvement in overall conditions and some pickup in hiring activity. Many manufacturing contacts also indicate plans to increase employment and capital spending in the months ahead. General merchandise retailers mostly report that sales were ahead of plan in January, and up from a year earlier, though some report that snowstorms slowed business in February. Auto dealers report mixed but generally sluggish sales results for January and early February, though used car sales remain strong. Tourism activity in New York City has picked up since the last report, though snowstorms in much of the East appear to have crimped activity in early February. Commercial real estate markets have been steady to softer since the last report, while the sales/investment market remains exceptionally weak. Residential real estate markets were mixed to weaker in early 2010. Finally, bankers report weakening in loan demand in all categories, rising delinquency rates--mainly in the household sector--but some leveling off in credit standards on consumer loans and residential mortgages.

Consumer Spending
Retailers report that same-store sales were ahead of plan in January and up 5 to 10 percent from a year earlier, though conditions were more mixed but roughly on plan in the first half of February. General merchandise chains attribute much of the slowing in February to inclement weather; one contact notes that on days and in places with no major weather issues, sales were stronger than expected. One major mall in western New York State reports some softening in business in February, but another reports that business remained strong through mid-month, helped by particularly strong business from Canadian shoppers--particularly on Presidents' Day (Family Day, in Ontario) weekend. Virtually all retailers note that inventories were lean following the holiday season, though some report fairly heavy discounting.

New auto sales have reportedly been steady to softer in early 2010. Auto dealers in the Buffalo area report that sales were exceptionally weak in December and remained sluggish in January, running 20 to 25 percent below a year earlier, though some pickup was reported in February. In contrast, contacts in the Rochester area report that sales ended 2009 on a very strong note, buoyed by incentives, but softened in early 2010, slipping about 10 percent below year-earlier levels. However, used car sales have reportedly been brisk across the board. Auto dealers note modest improvement in credit conditions.

Tourism activity in New York City showed signs of picking up since the last report. Manhattan hotels report that last December was the best on record in terms of the occupancy rate, which rose to 86 percent--up from 82 percent a year earlier. Business remained strong in January and early February, with occupancy rates remaining ahead of comparable 2009 levels by similar margins. This rise occurred despite a roughly 6 percent increase in the number of hotel rooms, indicating a fairly substantial increase in the number of visitors. Room rates have been fairly steady in recent months, after accounting for seasonal variation, but are still down roughly 10 percent from a year earlier. After a relatively sluggish holiday season in 2009, Broadway theaters report a noticeable pickup in business in January--total revenues were up nearly 20 percent from a year earlier, while attendance rose roughly 8 percent. Business tapered off markedly in the first half of February, but this likely reflects heavy snow in many parts of the East. Finally, surveys by both the Conference Board and Siena College indicate that consumer confidence in the region climbed to a roughly two-year high in January.

Construction and Real Estate
Housing markets appear to have softened in early 2010, after hints of a pickup in late 2009. New York City's sales and rental markets both showed signs of slackening since the last report. Rental activity, which had stabilized in December, has reportedly weakened more recently, while asking rents were relatively stable but lower than a year earlier. Co-op and condo transactions, which had picked up in the latter part of 2009, are said to have slipped across the board thus far in 2010, while prices have reportedly continued to drift down. Similarly, northern New Jersey's single-family housing market has reportedly lost momentum in early 2010--particularly for new homes--after showing scattered signs of a pickup in late 2009. However, this may partly reflect unusually harsh winter weather this year in much of the state. Construction of both single- and multi-family homes is moribund, as developers are reportedly holding off on any new development. Still, a real estate agent in a relatively upscale area notes that short sales are not all that common and that most transactions are still above the remaining mortgage balance; however, she notes that prices continue to drift down--especially at the high end, where affordability remains a major factor. The homebuyer tax credit is not much of a factor because it represents a small portion of the typical house price. Buffalo-area Realtors indicate that sales were sluggish in both late 2009 and early 2010, though here, the recent extension of the homebuyer tax credit is expected to spur increased activity in the months ahead.

Commercial real estate markets across most of the District softened since the last report. Vacancy rates in Manhattan continued to climb, while asking rents continued to fall and were down more than 20 percent from a year ago. Vacancy rates also rose noticeably in Westchester and Fairfield counties, while asking rents were down by 6 percent. In most other areas around the District, however, vacancies and rents were relatively stable. Commercial real estate sales remained exceptionally weak across the board.

Other Business Activity
A major NYC employment agency, specializing in office jobs, reports that hiring activity has been sluggish but stable in early 2010, in contrast with the modest pickup that seemed to be taking hold in late 2009; still, conditions are reported to be not as bad as during most of 2009. There has been some pickup in hiring in the legal industry, which had been exceptionally weak. However, there is only scattered hiring in the financial sector, and mostly at smaller firms. Separately, a securities industry contact indicates that the pace of layoffs has slowed to more normal levels, giving greater job security to those still employed; nevertheless, firms are reluctant to hire in many areas due to uncertainty about both the economic and regulatory outlook. Although there has been little activity in mergers and acquisitions or IPOs (initial public offerings), other business lines are described as fairly good. Bonuses at large firms are up from last year's depressed levels but largely restricted (i.e. options or stocks that cannot be sold immediately). There has been some shift in compensation away from bonuses and toward salaries.

Looking at business conditions more generally, both manufacturing and non-manufacturing contacts report continued improvement since the last report. Manufacturing firms in the District note some further improvement in business conditions, along with modest increases in employment. Contacts remain optimistic about the general business outlook and anticipate widespread increases in new orders, as well as increased hiring and capital spending. Non-manufacturing contacts overall report continued modest improvement in business and a slight pickup in employment for the first time since the start of the recession; contacts remain mostly optimistic about the general business outlook and a growing proportion plan to expand capital spending and employment in the months ahead. Both manufacturers and other firms report increasingly widespread rises prices paid but little or no change in selling prices.

Financial Developments
Bankers report decreased demand for all types of loans, particularly in the residential mortgage category, where more than half of those surveyed report weakening demand, compared with just 11 percent reporting a pickup. Bankers also reported decreased demand for refinancing. Respondents indicate further tightening in credit standards in the commercial mortgage and commercial and industrial loan categories but some leveling off in standards on consumer loans and residential mortgages. Still, no banker reported an easing of credit standards in any of the categories.

The spreads of loan rates over costs of funds increased for all loan categories--most notably in the commercial mortgage category. Respondents indicate widespread decreases in average deposit rates. Finally, respondents report continuing increases in delinquency rates for all categories except the commercial and industrial loan category, where rates are reported to have leveled off.

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Last update: March 3, 2010