January 17, 2001 Federal Reserve Districts Second District - New York

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Economic activity in the Second District is generally well maintained at a high level, though there have been scattered signs of softening since the last report. Input cost pressures have intensified somewhat, but prices of finished goods and services remain generally stable. Despite a number of layoff announcements, labor markets remain tight, with brisk hiring activity reported in financial and related services. Wage pressures remain strong but steady, while there are ongoing reports of large hikes in health benefit costs. Retailers report that sales were on or close to plan in December, with same-store sales up moderately from the strong levels of a year earlier. Inventory levels were generally described as satisfactory; both prices and merchandise costs were little changed from a year ago. Real estate and construction activity remain generally robust, although Manhattan's residential and commercial real estate markets have cooled somewhat. Purchasing managers report some slowing in the manufacturing sector. The trucking industry has seen a sharp increase in bankruptcies and truck repossessions, as business has slowed while costs have risen. Finally, bankers report weaker consumer loan demand, rising consumer delinquency rates, and tighter credit standards--particularly on commercial loans. Consumer Spending Retail sales were on or close to plan in December. Compared to a year earlier, same-store sales at major chains ranged from modest declines to gains of close to 5 percent. Similarly, smaller retailers across New York State indicate gains of 2-4 percent. Most contacts note that weakness in the first half of the month was offset by a late surge in the days immediately before Christmas. Fairly strong sales were also reported for the week after Christmas, but a major snowstorm on December 30--the last day of the fiscal month for most chains--held down the monthly total. Sales have generally been described as brisk in early January. Strong sales were reported for apparel (especially women's apparel), but sales of home furnishings were generally described as sluggish. Retailers report that inventories are in good shape in most categories, though some contacts report stock-outs of a wide range of winter-weather merchandise, ranging from automotive products and shovels to boots and outerwear. Almost all contacts indicate that both selling prices and merchandise costs were virtually unchanged from a year earlier. In addition, most contacts say that the degree of discounting is about the same as a year ago. While a number of retailers say that their stores were under-staffed because they were unable to hire as many workers as desired, wage pressures during this past holiday season were described as comparable to the prior year. However, some contacts report large increases in health benefits costs. Construction and Real Estate Despite scattered signs of cooling in the residential and commercial real estate markets, prices are still up substantially from a year ago, and construction activity remains strong. Manhattan's office market remains tight, with asking rents running 30 percent higher than a year ago; however, availability rates (space that is vacant or coming on the market over the next year) have edged up from the extraordinarily low levels seen in the third quarter. There are also reports of a sizable increase in office space available for sub-lease--largely from dot-coms--which is not included in the availability rates. Realtors report that the market for existing single-family homes was robust in November, with prices up 10-15 percent from a year earlier across the New York City area, and up roughly 3-5 percent in upstate New York. Unit sales also picked up in November and were higher than a year earlier--both upstate and downstate. More recently, though, Manhattan's co-op and condo market has shown more signs of softening. According to a major New York City Realtor, as well as a leading appraisal firm, apartment prices remained well above year-earlier levels in the fourth quarter; however, unit sales fell, properties stayed on the market for longer, and there were more price concessions and fewer bidding wars. Both buyers and sellers are said to be increasingly "nervous," and the market is described as much less speculative. Residential construction activity remained strong in the fourth quarter, and a persistent backlog of orders for new homes, as well as public infrastructure projects in the pipeline, should provide strong momentum for the industry during 2001. Permits to build multi-family housing picked up in New York and, especially, in New Jersey in November. It appears that more apartment units will have been started in the District in 2000 than in any year since 1987. Single-family permits held steady in November and were little changed from a year earlier. Still, homebuilders in northern New Jersey indicate that land and labor shortages persist, that demand continues to outstrip supply, thus driving up home prices, which are running 10-15 percent higher than a year ago. Other Business Activity Despite a sizable number of layoff announcements at both Internet firms and Web divisions of traditional media companies, the New York City area's labor market is still described as extremely tight. A leading employment agency reports that strong pent-up demand for workers persists--particularly from the financial services and legal services industries. In addition, most workers losing their jobs at dot-coms are being snapped up by other firms. There remains particularly strong demand for legal, administrative support and computer-savvy workers. Purchasing managers report some slowing in the region's manufacturing sector, along with a pickup in price pressures. Buffalo-area purchasers report that the local economy continued to expand at a moderate pace in December, as production activity and employment levels held steady while new orders continued to increase. However, purchasers in the New York City area report that manufacturing activity retreated in December, after expanding steadily since mid-year. They have also become less optimistic in their expectations for the business outlook--many have scaled back their hiring intentions, and a large majority of manufacturers have reduced their purchases (more than the seasonal norm). Virtually all respondents in the New York City area note rising energy costs, while cost increases are also reported for construction and architectural services. More generally, purchasers in both areas report increasingly widespread rises in input costs. The trucking industry is experiencing hard times, according to an industry expert. Demand for trucking services has softened considerably, while fuel, insurance and labor costs have risen significantly. Many firms have imposed fuel surcharges on customers, but these are being limited by the threat of competition from railroads. With more trucking firm bankruptcies in 2000 than in a number of years, there has been a sharp increase in truck repossessions, which has, in turn, created a glut of used trucks and a drop in prices. Financial Developments Demand for all types of loans fell over the last two months, according to the latest survey of small to medium-sized Second District banks. Declines were particularly widespread for consumer loans and residential mortgages, even after adjusting for seasonality. Refinancing activity also weakened. Bankers reported further tightening in credit standards--particularly on commercial loans and non-residential mortgages. Interest rates on both loans and deposits fell over the last two months. Loan performance was mixed. Delinquency rates rose for consumer loans but declined for non-residential mortgages; they were essentially unchanged in other categories. Return to top Boston Philadelphia