April 21, 2004 Federal Reserve Districts Second District--New York

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The Second District's economy has gained momentum since the last report, with gradual improvement in the labor market and some signs of a pickup in price pressures. Retailers report that sales were ahead of plan in March, despite weak consumer confidence numbers and unseasonably cool weather. Recent business surveys point to continued strength in the manufacturing sector, along with widespread increases in input prices. The housing market continues to show strength, particularly in the New York City area, and residential construction has begun to pick up, after being hampered by heavy rain and snow in January and early February. Manhattan's office market has continued to recover gradually, while its hotels and theaters have seen notable strength. New York's securities industry enjoyed an exceptionally strong first quarter, in terms of both revenues and profits, and firms are reported to be stepping up hiring. Finally, bankers report some pickup in loan demand and further declines in delinquency rates. Consumer Spending Despite steady to weaker consumer survey results, retail sales were said to be brisk in March. Based on Siena College's survey of New York State residents, confidence was flat in March, following a pullback in February. At the same time, the Conference Board's survey covering residents of the Middle Atlantic states (NY, NJ, PA) residents showed confidence dipping another 4 points in March, following an 11-point drop in February. Still, retailers report that sales were ahead of plan in March, as year-over-year same-store sales gains ranged from 5 percent to 12 percent. Most contacts note particular improvement in apparel sales, despite relatively cold weather. This strong performance, in the face of weak consumer confidence and the recent run-up in gasoline prices, has surprised some retail contacts. Most retailers describe inventories as relatively lean, with a lack of clearance merchandise translating into fewer markdowns. A number of retailers report that selling prices, which had been edging down over the past two years, have begun to level off. In general, retailers report little or no upward pressure on wages, but complaints persist about rising health care costs. Construction and Real Estate Both home construction and residential real estate markets have been robust since the last report, particularly in New York City and northern New Jersey, though the rental market continued to lag. After a weather-induced slowdown in January, home construction activity bounced back in February and is said to have rebounded further in March. Year-to-date, single-family housing permits are running 3 percent ahead of 2003 levels, while multifamily permits are up 10 percent. Contacts in northern New Jersey's housing industry characterize the market as extremely tight, with a persistent shortage of homes on the market. They report that selling prices for both new and existing homes are up roughly 10 percent from a year earlier. The greatest concerns expressed by New Jersey homebuilders are a shortage of available land and a roughly 40 percent rise in lumber prices over the past year. Similarly, a large Manhattan real estate firm reports that sales of co-ops and condos were brisk in the first quarter, and particularly in March, with a dwindling inventory of available units driving up prices and triggering numerous bidding wars. In contrast, the apartment rental market is reported to be slack, with inventories up from a year ago and rents steady but well below the peak levels of 2000. Manhattan's office market showed some further modest improvement in March, ending the first quarter with its lowest vacancy rate in 1� years, as brisk leasing activity more than offset additional sublease space coming onto the market. Also, the gradual upturn in asking rents continued in early 2004, though they are still more than 20 percent below their peaks of late 2000. Long Island's office vacancy rate fell more than a point in the first quarter, to 13.1 percent, but rents were flat. Other Business Activity A major New York City employment agency, specializing in office jobs, reports that the labor market has continued to strengthen in March and early April, with improvement described as moderate but broad-based and demand for temporary workers picking up. Salaries are relatively flat--no longer being rolled back, but no noticeable increases either. A contact in the securities industry reports that Wall Street firms posted exceptionally strong revenues and profits in the first quarter and are looking to ramp up hiring. Manhattan hotels report that business was brisk in the first quarter, particularly in March, when revenue was reported to be up nearly 30 percent from a year earlier, reflecting a 16 percentage point jump in occupancy rates and a 5 percent rise in average room rates. Broadway also posted strong results for March: in the second half of the month, compared with a year earlier, theaters report a 17 percent increase in attendance and a 22 percent jump in box-office revenues. [Statistics for the first half of March are not comparable due to a strike in early March 2003.] Separately, a hike in New York City taxi fares will raise the cost of the average ride by 26 percent as of early May. The district's manufacturers report further strength in business conditions in March and early April. Purchasing managers in both New York City and Buffalo areas continue to report widespread improvement in general business conditions in March, as well as upward cost pressures. Anecdotally, manufacturers across the District note ongoing improvement in new orders, production activity and hiring activity in late March and early April, along with intensifying price pressures. Financial Developments Bankers at small to medium-sized banks in the Second District report an increase in demand for consumer loans and commercial and industrial loans, while demand for both residential and commercial mortgages held steady. Lower refinancing activity was reported by nearly two thirds of those surveyed, whereas demand for new home mortgages evidently strengthened. Credit standards in all loan categories remained virtually unchanged. There was significant dispersion in the responses regarding the overall lending interest rates: decreases were reported by 37 percent of bankers, increases by 26 percent. On balance, rates on consumer loans and commercial mortgages were lower, while rates on residential mortgages and commercial and industrial loans were steady. Average deposit rates also decreased, on net. Finally, bankers report that delinquency rates were little changed for commercial and industrial borrowers but declined among other loan categories--particularly residential mortgages. Return to top Boston Philadelphia