November 27, 2002
Federal Reserve Districts
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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.
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
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
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.
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.