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May 5, 1999
Federal Reserve Districts
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The District's economy retains significant upward momentum, along with generally stable prices. Retailers report that sales have been on or above plan in March and April, though growth has moderated from the first two months of the year. Housing markets have tightened significantly in early 1999, especially in New York City. Following sharp improvement in 1998, office markets in and around New York City appear to have stabilized in the first quarter of 1999. Regional purchasing managers report a strong pickup in manufacturing activity in March, along with declining commodity prices but continued inflation in costs of contracted services. In general, there are increasing signs of labor shortages throughout the District. Local banks report some moderation in loan demand growth, tightening credit standards on commercial loans, and sizable declines in delinquency rates--especially on consumer loans.
Consumer Spending
Most retailers note little or no increase in wage pressures. One chain indicates that it is raising entry-level pay scales and accelerating salary increases to reduce turnover; however, the overall impact on salary costs is said to be modest. Retailers report modest declines in selling prices, on balance, as lower merchandise costs and increased productivity have more than offset moderate wage increases.
Construction & Real Estate
A leading New York City realtor reports that prices of prime Manhattan co-ops and condos are "going through the roof," while year-to-date unit sales are up roughly 35 percent from 1998 levels. As a further sign of tight market conditions, spreads between asking prices and bids are said to be at record lows. The high end of the market is especially tight as dwindling supply and strong demand has priced even some families with "high six-figure incomes" out of the market. Homebuilders in New Jersey report that buyer traffic has slowed from exceptional January-February levels, but that sales have remained strong. Moreover, the average price of a comparable new home rose by 13 percent between late 1997 and late 1998, largely reflecting rising land prices--one industry expert notes that there is "almost no inventory of available land." There has been no letup in the remodelling boom, especially at the high end of the market. Commercial real estate has stabilized this year, following torrid growth in 1998. Office vacancy rates in the New York City area held steady in the first quarter--rates edged down in Lower Manhattan, Fairfield County, and Long Island, but rose sharply in Westchester County. Manhattan office rents rose at a 5-9% annual rate in the first quarter but were still up 20% from a year earlier.
Other Business Activity
There are signs of increasingly tight labor market conditions. A large employment services firm reports that while demand for temps has softened in recent months, the supply of temps has all but dried up; however, demand for permanent employees remains strong except in the manufacturing sector. This contact also reports that turnover has increased in the New York City area, with people increasingly moving into better-paying positions at other firms. Even in western New York State, where economic growth has been sluggish, labor shortages appear to be hindering growth: for example, a 120-technician electronics plant slated for Niagara County will instead be built in Florida, with the firm citing staffing problems--it couldn't find enough electronics technicians even after advertising for nearly one year.
Financial Developments
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