June 10, 2009 Federal Reserve Districts Second District--New York

Skip to content Summary Districts Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Full report

The Second District's economy has shown signs of stabilizing since the last report, though some sectors continued to weaken. The labor market remains exceptionally slack and has yet to show signs of leveling off. Manufacturing sector contacts indicate that activity has generally stabilized and express increasingly widespread optimism about the near-term outlook. Retailers indicate that sales improved somewhat in May and were roughly on plan but still down moderately from a year earlier. Consumer confidence rose noticeably in April and May, rebounding from a record low. However, tourism activity in New York City showed further signs of softening since the last report. Commercial real estate markets have been mixed since the last report, with Manhattan's market continuing to weaken, but most surrounding markets slack but stable. Housing markets appear to be stabilizing in much of the District but continued to weaken in New York City. Finally, bankers again report increased demand for home mortgages but steady to somewhat weaker demand in other loan categories; they also report further tightening in credit standards and continued moderate increases in delinquency rates across all segments. Consumer Spending Retail sales were reported to be roughly on plan in May but still down moderately from a year earlier, with selling prices holding fairly steady overall. Two major retail chains indicate that same-store sales were down by less than 4 percent from a year earlier in May--and roughly in line with plan--following declines of nearly 10 percent in April. One contact notes that lower-priced merchandise lines are generally selling better than premium lines. Overall, selling prices are reported to be stable, and prices paid for merchandise ordered for the 2009 holiday season are little changed from last year. On a weaker note, contacts at two major shopping malls in upstate New York report that sales weakened a bit in April and May, following a relatively stable first quarter, and that a growing number of stores have been closing; they also report that price discounting has picked up again. Auto dealers in upstate New York report that sales are down 20 to 30 percent from a year ago. Declines in unit sales have been a bit less pronounced in the Rochester area than in the Buffalo area. Tight credit remains a major constraint, as auto manufacturers have cut back on financing availability. The Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, PA), which had fallen to a record low in March, rebounded briskly in April and registered a further moderate gain in May. In contrast, tourism activity in New York City has weakened since the last report. Manhattan hotels report that business had picked up modestly in April, but fell back in May, with revenues falling nearly 40 percent below a year earlier; this compares with drops of 30 percent in April and 35 percent in March. Similarly, Broadway theaters report that business picked up in April but weakened in May: attendance was up 1 percent from a year earlier in April but down 4 percent in May; revenues were up 4 percent in April but down 3 percent in May. Construction and Real Estate Commercial real estate markets in the District were steady to weaker since the last report. Manhattan's office market continued to deteriorate, with vacancy rates climbing and asking rents on Class A space down 17 percent from a year earlier as of the end of May. However, office markets in surrounding areas, as well as in upstate New York, have remained relatively steady thus far in the second quarter. Vacancy rates and asking rents were little changed in Westchester and southwestern Connecticut, and in the Albany and Syracuse areas; conditions weakened slightly in Long Island, northern New Jersey, and metropolitan Rochester, while conditions strengthened slightly in the Buffalo area. On the other hand, industry contacts note that the office purchase market remains exceptionally sluggish throughout the District, and that there is virtually no new development being started. The rental market for industrial space overall continued to soften moderately in April and May, as did the rental market for retail space. Housing markets remained soft throughout the District, with ongoing deterioration reported in New York City--both in the rental and sales markets--but signs of stabilization indicated in other parts of the District. An authority on New Jersey's housing industry maintains that the market for new homes continues to slacken but that the market for existing homes appears to have stabilized; sales volume has reportedly picked up as sellers have reduced prices, which are now running an estimated 12-15 percent below a year ago. One real estate agent in suburban New Jersey reports that the market for more moderately-priced homes (under $600K) has picked up somewhat in recent months--some sellers that have reduced their prices noticeably have received multiple offers. A contact in the Buffalo area reports that sales activity has picked up somewhat since March and that home values have remained stable. Contacts across much of the District indicate that new residential construction has virtually ground to a halt. New York City's apartment sales and rental markets have continued to soften since the last report. A leading residential appraisal firm notes that market conditions continue to deteriorate--particularly for new buildings, many of which are less than half occupied. Sales activity is reported to be down 50 percent from a year ago in Manhattan, and down 25-30 percent in Brooklyn and Queens. Prices for Manhattan apartment resales are reported to have fallen by roughly another 5 percent since the first quarter and are running roughly 25 percent lower than a year ago, though price moves have been quite erratic due to thin volume. Manhattan's rental market has also continued to soften, partly reflecting increased supply, as many landlords are renting out units that are not selling. Asking rents are reported to be down 5-10 percent from a year earlier in May, but the decline in effective rents has been much steeper due to the widespread and growing practice of waiving of rental fees and offering one or more months of free rent. Other Business Activity Contacts in the District's manufacturing sector report that conditions have generally stabilized since the last report, and a majority foresee improvement in business conditions over the next six months. In assessing the labor market, however, contacts continue to report a contracting workforce at their firms, on balance, though employment is expected to level off in the months ahead. A trucking industry contact notes that shipping volumes continued to decline in April and were down 13 percent from a year earlier--the steepest year-over-year drop since the mid-1990s. Contacts in service-sector industries generally report that both business conditions and employment levels continued to weaken in May. A securities industry contact notes that firms are generally showing profits in the current quarter, reflecting low interest rates, an upturn in the equity markets, and a pickup in underwriting activity. There are scattered reports of hiring in the financial sector--mainly at smaller firms and accounting firms--but these are being swamped by ongoing layoffs at large financial firms, mainly related to mergers in the industry. A leading New York City employment agency notes that, despite some pickup in hiring activity, there has been no noticeable change in the large queue of job-seekers; there are very few opportunities for people now graduating from college, and a sizable proportion of 2008 graduates are still looking for work. Financial Developments Small to medium-sized banks in the District report mixed results on loan demand: increased demand is again noted in the residential mortgage category; demand for loans in the commercial and industrial loan category decreased, while demand for consumer loans and commercial mortgages held steady. Bankers continue to note increased demand for refinancing. For all loan categories, respondents indicate a tightening of credit standards, and no banker reports an easing of credit standards. Respondents indicate increased spreads of loan rates over costs of funds on commercial loans and mortgages, on net, but decreased spreads on home mortgages; no change is reported in the consumer loan category. Nearly three in four respondents cite a decrease in the average deposit rate. Finally, bankers report increased delinquency rates for all loan categories--the proportions reporting increased delinquencies range from 28 percent of respondents in the consumer loan category to 44 percent in the commercial mortgage loan category. Return to top Boston Philadelphia