April 24, 2002 Federal Reserve Districts Second District - New York

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The District's economy has strengthened, on balance, since the last report, with no signs of broad-based price pressures. The labor market has firmed a bit, and consumer confidence has risen. Retail sales in March and early April were mixed, but generally close to plan--comparable-store sales were up marginally from a year earlier, inventories were said to be in good shape, and both merchandise costs and selling prices remained flat. Residential sales markets across the District have shown further signs of strengthening since the last report, though rental markets remain soft. Manhattan's office market remains slack but has shown signs of stabilizing since the last report. Purchasing managers and manufacturers report strengthening in business conditions and express widespread optimism about the near-term outlook. New York City hotels report continued moderate improvement in business in March. Finally, bankers report steady to stronger loan demand, slightly tighter credit standards, and lower delinquency rates on consumer and home mortgage loans. Consumer Spending Major retailers report that sales were mixed but generally close to plan in March and the first half of April. General merchandise chains report little change on a year-over-year basis, while discounters continued to report moderate gains. Manhattan department stores report that business has rebounded fully--as before September 11, sales are now back on par with those in the outer boroughs and suburbs. Sales of women's apparel have remained fairly strong in recent weeks, and there has been some rebound in men's apparel. Sales of home furnishings and electronics have continued to be strong, but retailers report weakening in sales of small-ticket items for the home, such as linens, tableware and small appliances. More generally, retailers report that inventory levels remain satisfactory. One large chain indicates that it is building inventories of imports for the upcoming fall and winter seasons earlier than usual, in anticipation of a longshoreman's strike on the West Coast this summer. Most contacts report that selling prices and merchandise costs are essentially flat. Retail wage costs remain fairly stable, but contacts continue to report sharp increases in health and property insurance premiums. One major chain notes that costs in both these categories are running 20 percent ahead of a year ago. Recent surveys of District residents suggest sturdy improvement in consumer confidence. According to the Conference Board, consumer confidence in the Middle Atlantic region rose sharply in March, climbing to its highest level since last August. A Siena College survey of New York State residents shows that confidence improved across the state in the first quarter, led by New York City. Construction and Real Estate Home sales markets across the District have strengthened further since the last report. Realtors in both the Rochester and Buffalo areas report strong home sales volume and some acceleration in prices. Contacts note that demand has been steady to stronger, while the number of homes on the market has dwindled. Similarly, a leading New York City appraisal firm reports that Manhattan's co-op and condo market strengthened in the first quarter: both unit volume and selling prices were up noticeably from a year earlier, and homes have not stayed on the market for long. In contrast, the market for rental apartments remains weak; in both Manhattan and along the Hudson waterfront in New Jersey, rents are reportedly averaging 15 percent lower than a year ago, and some landlords are offering a month's free rent. Contacts attribute the dichotomy between the sales and rental markets to low mortgage rates, as well as the fact that local residential development in recent years has almost entirely consisted of rental properties. Commercial real estate markets, though still slack, showed signs of stabilizing in February and March. A major Manhattan brokerage firm reports that office availability rates, which had climbed to a roughly three-year high in January, leveled off in February and March. Although leasing activity was subdued in the first quarter, much less new space came to market than in the fourth quarter of 2001. Other Business Activity A major New York City employment agency reports that the labor market picked up substantially in March and the first half of April, though it was still a good deal weaker than during the boom that lasted through 2000. A pickup in hiring activity was reported across a wide range of industries, including a moderate rebound in the financial sector. However, hiring remains weak in the information technology field, with large numbers of people still looking for work. Manhattan hotels report that business continued to recover in March, with the occupancy rate roughly on par with a year earlier. Room rates were down roughly 12 percent from a year earlier--about the same as in February but substantially improved from January and especially late-2001. New York State's goods-producing sector has shown further signs of rebounding. New York City area purchasing managers report that manufacturing-sector conditions continued to strengthen in March, and they expressed more widespread optimism about the near-term outlook than in nearly two years. Purchasers at Buffalo-area factories report that production activity, new orders and employment leveled off in March, after declining in the first two months of the year. Purchasers in both areas report that input prices were little changed. More recently, based on a survey conducted in early April, New York State manufacturers report that business conditions resumed an improving trend, following a lull in March, and that price pressures increased modestly. Respondents also express increasingly widespread optimism about the near-term business outlook. Financial Developments According to the latest survey of small to medium-sized Second District banks, demand for nonresidential mortgages picked up substantially, but loan demand in most other categories has remained stable since the last report. However, a large proportion of bankers report declines in refinancing activity--43 percent, compared with only 18 percent reporting increases. Bankers continue to report some tightening in credit standards for all but residential mortgages. In particular, tighter standards in commercial and industrial lending are reported by one in four bankers, with only 3 percent indicating easier standards. Loan rates increased on most types of loans, most notably residential and nonresidential mortgages, though rates on consumer loans remained stable. The average deposit rate remained stable. Lenders report lower delinquency rates on consumer loans and especially on residential mortgages, but little or no change in other categories. Return to top Boston Philadelphia