March 6, 2002 Federal Reserve Districts Second District - New York

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Economic conditions in the Second District have been mixed since the last report, with hiring remaining weak but housing quite strong. Retail sales, which had been a bit lean in January, were generally reported to be back above plan in February. Retailers indicate that selling prices have been steady in early 2002. Purchasing managers report mixed business conditions in January, though a survey of manufacturers across New York State suggests ongoing improvement in general business conditions in early February. Housing markets appear to have gained further momentum since the last report, in both metropolitan New York City and parts of upstate New York. New York City's office market has shown signs of bottoming out, though suburban markets have slackened further. Manhattan hotels experienced less of a seasonal slowdown than normal in January. Finally, bankers report some weakening in demand for consumer loans and home mortgages, ongoing tightening in credit standards, and a slight up-tick in consumer delinquency rates. Consumer Spending Major retail chains report that January sales were constrained by lean post-holiday inventories, but most indicate that business was back on or above plan in February. Comparable-store sales in recent weeks have been little changed from a year earlier, with brisk sales of home goods offsetting sluggish apparel sales--particularly men's apparel. In general, discounters continue to fare better than department stores. Similarly, small retailers across New York State indicate that business has been little changed from a year ago, but, in most cases, this was better than had been expected. Selling prices are reported to be flat, though the lack of clearance merchandise in January translated into less discounting. According to Siena College's latest monthly survey of New York State residents, confidence was little changed around the District in January. More recently though, the Conference Board reports that consumer confidence in the Middle Atlantic region tapered off in February. Construction and Real Estate Commercial real estate markets remained generally weak in early 2002, though conditions in Manhattan appear to have stabilized. While availability rates in Lower Manhattan continued to climb in January, rates in Midtown retreated noticeably. Asking rents in both areas were down substantially from a year earlier, and the drop in contract rents is said to have been even more pronounced. Office markets in New York City's suburbs, though, slackened considerably in recent months--particularly in southwestern Connecticut and northern New Jersey. Markets in New Jersey are being dampened by a substantial amount of sublease space, mainly from telecommunications firms, and by a large volume of space recently completed and under construction. Across the metro area in general, asking rents were slightly higher at the beginning of this year than in early 2001, but landlords are reported to be offering more concessions. Despite the sluggish leasing market, sales transactions are described as fairly strong across the metropolitan area. In contrast, the residential market has continued to gain momentum. A leading New York City housing appraisal firm and a major brokerage both report a substantial pickup in the co-op and condo market in January and early February. Apartment sales activity has been brisk in recent weeks, with selling prices up modestly from a year earlier and transactions volume up substantially. In addition, the inventory of available homes is back down, and bidding wars are, once again, increasingly common. The single-family housing market has also been quite strong. Homebuilders in northern New Jersey report a brisk rebound in demand and indicate that a supply shortage is again buoying home prices. Similarly, existing home sales prices in late 2001 were up on the order of 10 percent across most of the District, while sales volume was up slightly. Other Business Activity A major New York City employment agency reports a slight improvement in hiring activity in January and February, compared to the fourth quarter of last year, but no significant momentum. This contact indicates a deluge of resumes from technical people but very few such openings. The strongest labor demand is still reported to be coming from the legal industry, but there has been some pickup from a smattering of small firms in creative fields, such as public relations, advertising, and film. Manhattan hotels report that occupancy rates posted a normal seasonal decline in January. After adjusting for seasonal movements, January's occupancy rate was 78 percent, virtually the same as in December, and down only 4 points from a year earlier. The average room rate was down about 15 percent from a year earlier in January, compared with declines of 20-25 percent in the fourth quarter of 2001. Industry contacts note that business remained relatively favorable in February, buoyed by the World Economic Forum meetings. There are indications of improvement in New York State's manufacturing sector. A rising proportion of manufacturers across New York State report improvement in general business conditions and a sizable majority express optimism about the near-term outlook, based on a survey conducted in early February. However, surveys of purchasing managers offer more mixed results. New York City area purchasing managers report some weakening in business conditions in January--particularly in non-manufacturing sectors. Buffalo-area purchasers indicate that both production and new orders continued to decline in January, though declines were less widespread than in December. However, Rochester-area purchasers report modest improvement in business conditions in January, following a sharp pickup in December. Purchasers in the New York City area report fairly widespread declines in input prices, while those in the Buffalo area indicate moderate increases. Financial Developments According to the latest survey of small to medium-sized Second District banks, overall loan demand receded somewhat since the last report, driven largely by the consumer side. Nearly half of those surveyed report slower demand for both consumer and residential mortgage loans, but demand remained stable for commercial and industrial loans. Fairly widespread declines were reported in refinancing activity. Bankers reported continued tightening in credit standards for all types of loans. In particular, while none reported an easing of standards, roughly one in four bankers reported tighter standards on both nonresidential mortgages and commercial and industrial loans. Loan rates were steady to lower, while deposit rates decreased. Delinquency rates were reported unchanged for all types of lending except for consumer lending, where there was a moderate increase. Return to top Boston Philadelphia