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January 20, 1999
Federal Reserve Districts
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Economic growth in the District has picked up further since the last report, with very few signs of upward price pressures. Although retailers report mixed sales results for December, all experienced a strong pickup toward the end of the month, buoyed by cold weather and steep discounting; inventories were generally said to be in good shape in early January. The housing market continued to gain momentum in the fourth quarter, led by a strong rebound in New York City's co-op and condo market, continued brisk activity in the suburbs, and a marked recovery in sales activity in upstate New York. Manhattan's office market remains tight, although vacancy rates edged up from cyclical lows recorded in the third quarter; rents continued to rise, albeit at a slower pace than earlier in the year. Regional surveys of purchasing managers indicate a widening divergence between the manufacturing sector, which weakened in December, and non-manufacturing sectors, which continued to strengthen. New York City purchasers note that upward cost pressures for most contracted services moderated in December, while prices of other goods and services were flat. Finally, local banks report a normal seasonal decrease in loan demand, tightening credit standards, and declining delinquency rates.
Consumer Spending
Construction and Real Estate
New York State realtors report that sales of existing single-family homes were exceptionally strong in October and retreated only slightly in November, rising 9 percent above year-earlier levels. Year-to-date, sales are the strongest since 1988. Home prices were also firm in November, rising 6 percent above year-earlier levels. While the appreciation in home prices is mainly limited to the New York City area, sales volume is up strongly throughout the state. One contact in Rochester notes that 'warm weather and low mortgage rates' contributed to strong improvement in the local housing market in the fourth quarter; he sees 'no indication of a slowdown,' aside from the normal cold-weather lull. Revenues from New York City's mortgage recording tax were well above plan in November, reflecting strong conditions in the city's housing market. A major Manhattan real estate brokerage reports that the market for co-ops and condos improved sharply in mid-November and remained strong in December, with both sales and prices rebounding strongly in tandem with financial markets. While Manhattan's office market remains tight, office vacancy rates edged up in both October and November, after trending down throughout the year; rents continued to increase, but at well below the double-digit pace experienced through most of 1998.
Other Business Activity
In New York City, tourism remains robust; hotel occupancy rates were slightly lower than a year ago in November but have held steady at an exceptionally high level since August, even after adjusting for seasonal variation. Moreover, average daily room rates are up more than 9 percent from a year ago and continue to rise briskly.
Financial Developments
Interest rates on both loans (especially non-residential loans) and deposits continued their decline over the last two months. Delinquency rates continued to decrease for all loans, indicating both ongoing improvement in the quality of credit and seasonal factors.
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