November 27, 2002 Federal Reserve Districts Second District - New York

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The Second District's economy has shown signs of strengthening since the last report, with improvements in labor markets, retail sales, and manufacturing, but the overall pace of activity still looks soft. Real estate markets continue to cool off, and there is some downward pressure on goods and service prices. Retail sales have picked up since the last report, but they were still below plan in most cases; selling prices are described as steady to lower and retail inventories are said to be at or near desired levels. Manufacturers and purchasing managers indicate a rebound in business conditions in October and early November; they report stable input prices but some downward pressure on selling prices. Housing markets showed further signs of slowing since the last report, mainly at the high end, though prices remain well ahead of a year ago. New York City's office market also continued to slacken in October. Finally, bankers report increased demand for residential and commercial mortgages, tighter lending standards, and an upturn in delinquency rates on consumer and home mortgage loans. Consumer Spending Retailers report that sales in the District were mostly below plan in late October and early November, but stronger than in the last report. Same-store sales were little changed from a year earlier, on balance. Most of the recent improvement was attributed to apparel sales, which have reportedly picked up in recent weeks, largely due to colder weather. In general, apparel sales are still said to be weak. Sales of home furnishings are described as mixed, but one contact notes a drop-off in sales of home nondurables. One large chain notes that consumers have been spending less on food, increasingly opting for discount brands over premium brands. Inventories were reported to be down noticeably from a year earlier, though a few contacts report they are a bit high. Retailers generally report less discounting in recent weeks, as cold weather has helped clear an overhang of outerwear. Still, most contacts say that selling prices have declined, on balance. Regional surveys of consumers indicate steep declines in confidence in October. The Conference Board reports that confidence in the Middle Atlantic region tumbled 21 points in October, to a seven-year low, reflecting steep drops in both appraisal of current conditions and expectations. Similarly, a survey of New York State residents, conducted by Siena College, indicates that confidence fell sharply in October, reaching its lowest level in the survey's nearly four-year history. The steepest decline was in metropolitan New York City, where confidence fell below its September 2001 trough. Construction and Real Estate Residential real estate markets have shown signs of softening since the last report. In the third quarter, single-family home sales in New York State declined substantially more than the seasonal norm, though the average sales price was little changed, and still sharply higher than a year earlier. New York City's co-op and condo market has also shown signs of slowing thus far in the fourth quarter, with sales volume reportedly down and apartments taking longer to sell. A leading Manhattan appraisal firm indicates that prices for studios and one-bedroom units have held steady in recent months but that prices of larger apartments have slipped still, prices in both these categories remain ahead of a year ago. More generally, real estate contacts in downstate New York and northern New Jersey note a marked increase in the number of houses and apartments on the market, particularly at the high end. Multifamily permits in New York and New Jersey climbed to near a fifteen-year high in the third quarter, despite a slight decline in September. More apartments have been authorized in the past twelve months than in any full year since 1987. Single-family permits, which slipped in August, rebounded in September; overall, third-quarter levels were still high, but off the peak levels of the first half of the year. Manhattan's commercial real estate market slackened further in October: Availability rates edged up in both Midtown and Downtown, and asking rents remained sharply below comparable 2001 levels. One contact notes that a good deal of new sublease space has come on the market in recent weeks, and that most of the leasing activity is from firms relocating within the city. Other Business Activity There are scattered signs of a pickup in the labor market, for the first time in a number of months. Private-sector employment rose noticeably in both New York and New Jersey in October. A leading New York City employment agency, specializing in midlevel office jobs, notes some pickup in hiring activity in recent weeks; still, this contact describes labor demand as weak, particularly in the market for temps. Surveys of manufacturers and purchasing managers point to a fairly broad rebound in the region's manufacturing sector in October and early November. Buffalo-area purchasers report further improvement in business conditions in October, led by widespread increases in new orders; they also note declines in inventories, moderate growth in production activity, and little change in input price pressures. Rochester-area purchasers also report improvement in business conditions, though little change was reported in new orders; the latest survey also shows later deliveries but some diminution in upward price pressures. Purchasing managers in the New York City area report steady conditions in both the manufacturing and nonmanufacturing sectors in October, and no changes in input prices. Separately, our early November survey of New York State manufacturers indicates a brisk rebound in business activity, after a dive in October. Both shipments and new orders strengthened, although inventories declined, and respondents remained overwhelmingly optimistic about the near-term outlook. Manufacturers also report some increase in input prices but declines in selling prices. Financial Developments Small to medium-sized Second District banks report continued growth in demand for residential and nonresidential mortgages, but some seasonal weakening in demand for consumer as well as commercial and industrial loans. Refinancing activity continued to increase, with nearly 60 percent of bankers indicating increased activity compared with only 3 percent reporting decreases. On the supply side, credit standards continued to tighten, on balance, for all loan categories four in five bankers report no change, but none reports an easing of standards. Both loan rates and deposit rates continued to decline across the board. Lenders report an upturn in delinquency rates on consumer loans and residential mortgages but stable rates for nonresidential mortgages and commercial and industrial loans. Return to top Boston Philadelphia