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The pace of economic growth in the Second District has picked up since the last report. Most retailers report that sales continued to run ahead of plan in May, led by home-related goods. Retailers also report that both selling prices and merchandise costs were flat to down slightly, with one contact anticipating further downward price pressure in the months ahead; no increase was reported in retail wage pressures. Single-family housing markets in and around New York City tightened further, while New Jersey's remodeling boom has continued unabated. Office rents in Manhattan rose again at a brisk pace in April, while vacancy rates held steady at a low level.
Regional purchasing managers report that manufacturing growth rebounded in May, following a brief pause in April, while input prices were flat to slightly lower. Tourism remains brisk in New York City and appears to be picking up in western New York State. Finally, local banks report further declines in consumer delinquency rates and continued moderate growth in loan demand.
Consumer Spending
Most major retailers report that sales in the region were above plan in May, led by home-related goods. General merchandise retailers report that same-store sales were flat to up 6 percent, while discounters generally experienced stronger gains. Virtually all contacts noted particularly strong sales of goods for the home-bedding, furniture, appliances, and home-improvement merchandise. However, apparel sales were mixed, with a number of retailers reporting some weakness in children's and infants' clothing, as well as accessories and cosmetics. Retail inventories are generally reported to be at satisfactory levels, although one contact notes lean stocks of apparel and various seasonal merchandise.
Retail selling prices and merchandise costs were steady to down slightly. While most retailers report only modest cost savings on Asian imports, one contact notes that reduced-price electronics from Asia are now reaching the store shelves, and that apparel prices are expected to decline noticeably beginning in August. While there were no reports of significant wage pressures or increased labor shortages, a number of contacts express concern about recruiting and retaining staff during the peak hiring season in late autumn.
Construction and Real Estate
Housing markets in New York and New Jersey continued to strengthen in the early part of the second quarter, led by the single-family sector. Permits to build detached homes continued to trend up in April, with year-to-date sales running more than 15 percent ahead of 1997 levels. More recently, a number of homebuilders in northern New Jersey report that sales have picked up significantly in May and early June; selling prices have also risen in line with escalating land prices. In addition, New Jersey's market for existing single-family homes is said to be exceptionally tight, as reflected in the brief time that homes stay on the market and scattered reports of homes selling above the initial asking price. Remodeling activity also continues to boom; this is attributed to the state's old housing stock and a dearth of land available for new construction. Separately, New York State realtors report that unit sales of single-family existing homes continued to run 9 percent ahead of a year ago in April. Average selling prices were up 7 percent, reflecting price rises of more than 10 percent in the New York City area, combined with generally flat prices in the rest of the state.
The multi-family sector, which is also reported to be strong, may have reached a plateau. Permits to build apartments continued to retreat from exceptionally strong 1997 levels; year-to-date, they are down nearly 40 percent. Average prices of co-ops and condos in prime areas of New York City edged down in March and April but are still up roughly 3 percent over April 1997 levels.
New York City's office market remained tight in April, as commercial rents continued to surge, while vacancy rates steadied at a low level. Since the end of 1997, office rents have risen at an average annual rate of slightly over 25 percent in both Midtown and Lower Manhattan. However, vacancy rates in both areas, which had been trending down since mid-1996, have leveled off in recent months.
Other Business Activity
Local purchasing managers surveys indicate that the District's manufacturing sector rebounded moderately in May, following a growth pause in April. According to Buffalo purchasing managers, growth in new orders accelerated slightly in May after slowing in April, production activity continued to expand at a brisk pace, and hiring activity picked up moderately. New York purchasing managers report that business conditions in both the manufacturing and non-manufacturing sectors rebounded in May, after slowing in April. Both surveys indicate that prices of material inputs were flat to down slightly in May, though New York purchasers report persistent price pressures for contracted services.
Tourism remains brisk in New York City and may be picking up in western New York State. After trending up for four years, Manhattan's hotel occupancy rate has held steady at roughly 85 percent (seasonally adjusted) since the beginning of this year; however, room rates continued to rise at a rapid pace in April and were up roughly 10 percent from a year ago. Separately, bookings for future conferences in the Buffalo area are reported to have reached a record level in April.
Financial Developments
According to a survey of senior loan officers at small and medium-sized banks in the District, overall demand for loans increased at about the same pace as in the last report. Consumer loan demand accelerated, while demand for mortgages and commercial and industrial loans leveled off. Refinancing activity was also stable. Bankers also appear increasingly willing to lend: 34 percent report increased willingness, while only 3 percent report less. Virtually all respondents indicate no change in credit standards over the last two months. Interest rates on loans declined over the last two months- particularly for commercial and industrial loans-while deposit rates remained steady. Delinquency rates fell slightly, led by the consumer segment, indicating continued improvement in credit quality.
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