October 19, 2011 Federal Reserve Districts Second District--New York

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Economic growth in the Second District has remained modest since the last report, though there have been some signs of improvement in the labor market. Manufacturers report some further deterioration in their assessment of overall business conditions but note that orders, shipments and employment levels have been stable. Consumer spending, on the other hand, has been comparatively robust, despite low levels of consumer confidence: auto dealers report brisk business in August and September, non-auto retail contacts report that sales have been on or ahead of plan, and tourism activity has remained strong. Commercial real estate markets have been mixed but, on balance, slightly stronger since the last report. Home sales have been mixed, with scattered signs of a pickup, while the rental market has continued to strengthen. New home construction remains stalled, aside from rental apartments. There has been substantial new hotel development in Manhattan. Conditions in New York City's key securities industry have weakened noticeably. Finally, bankers report a pickup in demand for residential mortgage loans (largely refinancing), a slight increase in demand for non-residential mortgages, some easing in credit standards for business loans, and little change in delinquency rates. Consumer Spending Non-auto retailers report that same store sales were mostly on or ahead of plan in August and September and moderately ahead of a year earlier. A number of contacts describe back-to-school sales as fairly strong. One major mall in western New York State notes that a large flow of Canadian shoppers has contributed significantly to strong overall sales. While stores across much of the District had fairly widespread disruptions from Hurricane Irene, the effects were relatively brief and there was little or no net effect on sales or bottom line. Inventories are generally reported to be in good shape, though one chain describes them as a bit high. While some retailers reported sizable price increases for cotton-based apparel, others indicated that they have held off on such increases thus far; prices of other retail goods were generally reported to be steady to down slightly. Auto dealers in upstate New York report that sales picked up since the last report, helped by a replenishment of their inventories, as disruptions from the tsunami in Japan earlier this year dissipated. Buffalo-area dealers estimate that sales of new vehicles were up 5-10 percent from a year ago in both August and September. Rochester-area dealers indicate year-over-year sales gains of 11 percent in August and in the range of 10-15 percent for September. Auto dealers in both areas continue to report strong sales of used cars, with persistently lean inventories driving up prices. Dealers' service and parts departments also report sturdy business. Auto-industry contacts describe both retail and wholesale credit conditions as "fine". Consumer confidence remains at depressed levels. The Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, PA) fell in August and edged down further in September. Siena College reports that consumer confidence fell across most of New York State in the third quarter, with the steepest declines seen in New York City and the mid-Hudson Valley; only the Albany region saw an increase in confidence. Tourism activity in New York City has shown continued strength since the last report. Broadway theaters report that, aside from a brief swoon in business in late August due to Hurricane Irene, attendance has been fairly strong and roughly on par with a year earlier. Moreover, revenues for the full month of September were up nearly 10 percent from a year earlier, despite fewer than usual Broadway shows opening this fall. Manhattan hotels report that revenue per room was up roughly 6 percent from a year ago in both August and September, despite the hurricane. Most of this increase reflects higher room rates, as occupancy rates were little changed. Nevertheless, this implies a sizeable rise in tourism, because there are 6-7 percent more hotel rooms in Manhattan than a year ago. Construction and Real Estate Residential construction remains moribund, particularly for single-family homes. Home sales have picked up a bit in parts of the District but remain weak overall, while the rental market has continued to strengthen. The housing market in northern New Jersey remains sluggish: with a dearth of new home construction, aside from some development of rental projects, the inventory of distressed properties has declined slightly but remains large; sales volume remains sluggish, and home prices have held steady and appear to have bottomed out. After a strong July and August, sales of Manhattan apartments tapered off in September; while co-op sales have been relatively sluggish, condominium sales have been buoyed by foreign buyers. The inventory of available newly-constructed condos has declined considerably in recent months but remains elevated. The lowering of the jumbo mortgage threshold from $730,000 to $625,500 on October 1st appears to have had little effect on the market. Overall, co-op and condo prices remain essentially flat. New York City's rental market continues to strengthen. Net effective rents (which take into account landlord concessions that were prevalent a year ago but are now rare) are up roughly 5 percent from a year ago, with steeper increases at the high end of the market. Realtors in western New York State note that market conditions have improved slightly, with sales picking up and prices up slightly from a year ago. Commercial real estate markets have been mixed since the last report. In New York City and metropolitan Buffalo, office vacancy rates declined in the third quarter, while rents moved up. However, vacancy rates rose in Westchester and Fairfield counties and were little changed across other parts of the District, while asking rents were generally down modestly. The market for industrial and warehouse space has not changed noticeably, except in metropolitan Albany and northern New Jersey, where asking rents are down moderately from a year ago. New office construction and development remains sluggish, but a number of major hotel development projects have been announced recently or are already underway in New York City. Other Business Activity A financial industry contact notes that securities firms have not been doing well recently, with all major business lines--including sales & trading, underwriting, and IPOs--weakening. Declining profits, along with uncertainty about the regulatory environment, are reportedly causing firms to pull back on hiring and compensation; some layoffs are also anticipated in this industry the months ahead. More generally, a major New York City employment agency reports that the job market has improved a bit since Labor Day but is still sluggish; hiring activity is described as not terrible but not great--again partly reflecting weakness in the financial sector. In other sectors, though, labor market conditions have been steady to slightly stronger since the last report. Two major retail chains indicate that they plan to hire more seasonal workers for the upcoming holiday season than in 2010. Both manufacturers and firms in a variety of service sectors indicate that employment levels have been steady since the last report, and that they plan to increase headcounts over the next six months. Manufacturing firms across New York State indicate that their assessment of general business conditions has deteriorated further since the last report, although they note that orders and shipments have held steady. Respondents in that sector anticipate only modest improvement in business conditions and activity in the months ahead. Manufacturers also note that input price pressures have moderated somewhat and that selling prices have remained essentially stable. Financial Developments Bankers' responses suggest increased demand for residential and commercial mortgages and no change in demand for consumer loans or commercial and industrial loans. Increased demand was most prevalent for residential mortgages, where three times as many bankers indicated an increase as a decrease in demand. Much of this appears to reflect increased refinancing activity. Bankers report some slight tightening of credit standards for commercial and industrial loans, but in other loan categories, almost all contacts indicated no change in standards. Respondents report a decrease in spreads of loan rates over costs of funds for all loan categories--especially commercial mortgages. Respondents also indicated widespread decreases in the average deposit rate. Finally, bankers indicate a modest decrease in delinquency rates for residential mortgages, but a slight increase in delinquencies for commercial and industrial loans. No change was indicated in other loan categories. Return to top Boston Philadelphia