September 5, 2007 Federal Reserve Districts Second District--New York

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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. Consumer Spending Retailers report that sales were somewhat below plan in July, but somewhat ahead of plan in the first half of August. New York City continued to out-perform the rest of the region in terms of 12-month sales growth. Sales of home furnishings and equipment, though still fairly sluggish, are reported to have picked up somewhat recently. Apparel sales were mixed. Inventories were reported to be in good shape, though contacts indicate that discounts to clear out summer clearance merchandise were a bit steeper than usual. Overall, selling prices have remained 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 Commercial real estate markets across the New York City area were steady in July and early August. Manhattan's office building purchase market remains strong, though some tightening in credit standards has put moderate downward pressure on prices; still a contact at a major commercial leasing firm notes that purchase prices remain well ahead of this time last year. Manhattan's office rental market remains particularly tight: vacancy rates were steady near cyclical lows at the end of July, and asking rents were up 30 to 40 percent from a year earlier--about the same as in recent months. Leasing activity has slowed somewhat, but this is attributed, in part, to a dearth of available space. Office markets in the rest of the New York City area are also characterized as stable in July, though a good deal more slack than Manhattan's--particularly in northern New Jersey (except for Jersey City, where the market is fairly tight). Asking rents in these suburban markets are generally little changed from a year earlier. 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 New York State manufacturers report sustained expansion in business activity in July and August. Contacts continue to express widespread optimism about the six month outlook and plan to increase employment modestly, on average, in the next six months. Manufacturers indicate ongoing moderate increases in input prices but little change in selling prices. In general, non-manufacturing firms in the district again report moderate expansion in general business activity, but express somewhat less optimism about the general business outlook, and have reduced their hiring and capital spending plans somewhat since the last report. 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. Financial Developments Based on our latest survey of Second District banks, conducted from August 20th to 22nd, respondents generally report weaker demand for loans--particularly consumer loans, where close to 40 percent indicate weakening demand. There are also further declines reported in demand for home mortgages. Banks, on net, report some tightening in lending standards in all categories, but more on commercial loans and mortgages than on the household side. 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. Return to top Boston Philadelphia