June 18, 1997 Federal Reserve Districts Second District - New York

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Economic growth in the Second District has generally picked up since the last report, although unseasonably cold weather continued to depress consumer spending. Price pressures remained subdued, except for sharp rises in New York City co-op and condo prices and hotel rates. Retail sales continued to run below plan in May, reflecting weak sales of summer merchandise due to persistently cool weather. New York City's office market continued to tighten in April, buoyed by brisk leasing activity and dwindling supply, due to ongoing conversions to residential use. Housing activity continued to lag across upstate New York but gained momentum in and around New York City. Tourism continued to be robust, as hotel occupancy rates held steady at record highs. Regional purchasing managers' reports indicate sturdy growth in manufacturing but no significant price pressures in May. Finally, local banks report brisk growth in loan demand and falling consumer delinquency rates. Consumer Spending Major retailers in the region report that sales continued to be below plan in May, due mostly to cool weather. Compared to a year ago, same-store sales ranged from a 1 percent decline to a 5 percent gain. Retailers cited particular weakness in seasonal merchandise, such as air conditioners, lawn and garden supplies, and swimwear; this was attributed to unseasonably cold weather in both April and May. Otherwise, though, apparel sales were generally reported to be fairly good, while some contacts noted that sales of non-seasonal home goods have improved from their weak first-quarter levels. While inventories are generally in good shape, some retailers expressed mild concern about an overhang of summer merchandise; however, most of the surplus is expected to be sold when hot weather eventually does arrive. All contacts reported flat selling prices and merchandise costs. Retail wage pressures remain subdued; while some contacts say that recruiting new workers is growing increasingly difficult, they have so far held the line on wages. Construction and Real Estate The region's housing market continues to gain momentum, led by New York City. A major real estate firm reports that prices of Manhattan co-ops and condos surged in March and April; the average price per room was up more than 15 percent since the end of last year and approximately 25 percent since April 1996. New apartment construction in the city and northern suburbs continues to surge�more than four times as many permits were issued in the first four months of 1997 as in the same period in 1996. Additionally, high-priced commercial-to-residential conversions (largely in the Wall Street area) are adding to the local housing stock, and buoying the construction sector. The region's single-family market remains mixed. Sales of existing homes in downstate New York (New York City, Long Island, and the lower Hudson Valley) were up about 4 percent from a year ago in April, while prices were up 7 percent. However, in upstate New York, sales volume was down slightly, while prices were generally flat. Permits for new single-family construction followed a similar geographic pattern: for the first four months of 1997, permits were up roughly 30 percent from a year ago in New Jersey and downstate New York but well below early-1996 levels in upstate NY. Anecdotally, builders in northern New Jersey report that sales of new homes at both the moderate and very-high ends of the price range were strong in April and May; the former was buoyed mostly by first-time buyers, the latter by Wall Street and corporate transferees. The middle range of the market was characterized as slow but steady. Commercial real estate markets continued to gain momentum early in the second quarter. Midtown's office availability rate fell to 12.0 percent at the end of April, from 12.3 percent at the end of March and from 13.4 percent at the end of 1996. Downtown's fell to 20.8 percent in late April from 21.1 percent in late March, reflecting a surge in leasing activity and dwindling supply due to residential conversions. However, asking rents remain stable in both Midtown and Downtown Manhattan. Other Business Activity The region's manufacturing sector appears to be strengthening in the second quarter. Purchasing managers in the New York area report solid growth in manufacturing activity, accompanied by stable prices in both April and May. Buffalo-area purchasers report an acceleration in production and new orders, continued strong gains in employment, and slower vendor deliveries; the mild price pressures reported in March and April appear to have subsided in May. Tourism remained strong in April, as measured by hotel business: seasonally adjusted occupancy rates, which hit a record high of 86 percent in the first quarter, held steady in April. Average daily room rates, which had retreated modestly in the first quarter, rose sharply in April and were up 10% from a year ago. Separately, Broadway theaters reported that gross revenues for the 1996-97 season were up 14.5 percent from last year, while attendance jumped 11.8 percent to a 16-year high. Financial Developments The demand for loans strengthened during the past two months, according to a survey of senior loan officers at small and medium sized banks in the Second District. Forty percent of the banks reported an increase in demand, while less than 12 percent reported a decrease. Bankers reported stronger demand for all categories of loans�consumer, residential and non-residential mortgages, and commercial and industrial loans. Refinancing activity fell or was unchanged at most banks. Bankers' willingness to lend increased modestly, although credit standards on most types of loans were unchanged. However, bankers did report tighter standards on consumer loans. Loan rates were higher than two months ago, particularly for residential mortgages. Deposit rates also increased on net, with 42 percent of banks offering higher rates and only 3 percent lowering rates. Delinquency rates on all types of loans fell. Consumer delinquencies improved the most, with almost a third of banks reporting declines in delinquencies and only 10 percent reporting increases. Return to top Boston Philadelphia