April 20, 2005
Federal Reserve Districts
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The Second District's economy has continued to grow, on balance, since the last report, with considerable variation across sectors. There have been increasing signs of price pressures in some industries. Manufacturers report a slowing in growth of activity and note fairly widespread increases in input costs but only a moderate escalation in selling prices. Retailers indicate that March sales were on or below plan, largely reflecting unfavorable weather; however, hotels and other tourist-related businesses continue to report pronounced strength.
Residential real estate markets were extraordinarily robust in the first quarter and that strength appears to be carrying over into the current quarter. Office and industrial markets were moderately stronger in the first quarter. Although the securities industry showed strong growth in activity, revenues and profits in the first quarter, business has slowed noticeably in recent weeks; escalating input costs are reported in the industry. Finally, bankers report continued modest declines in delinquency rates; they also indicate steady to slower loan demand from the household sector but increased demand for commercial loans.
Indicators of tourism, primarily in New York City, signaled exceptional strength in the first quarter. Manhattan's hotel occupancy rate was nearly 7 percentage points higher in February than a year ago, and total revenues were up more than 20 percent; there are indications that March was almost as strong. Hotels in the Buffalo-Niagara Falls area also report that occupancy rates were up noticeably in early 2005 compared with a year earlier. Broadway theaters report a sharp pickup in activity since the last report: in March, attendance was up 7 percent from a year earlier, while revenues were up 9 percent, with the strongest gains coming at the end of the month. Two major Manhattan department stores report that brisk tourism has buoyed their sales. Passenger traffic at district airports is reported to be increasingly robust--volume at New York City area airports recently rose above pre-9/11 levels, with one airport currently said to be at full capacity; Buffalo's airport also reports brisk passenger traffic. Very strong growth is also reported in bridge and tunnel traffic.
Construction and Real Estate
Commercial real estate markets across the New York City metro area strengthened moderately in the first quarter. Office markets in Manhattan and northern New Jersey tightened in the first quarter, with vacancy rates declining and rents rising; some softening in Lower Manhattan's market was more than offset by further strength in the Midtown and Midtown South areas. Sales of office space weakened slightly in Northern New Jersey, but continued to strengthen in both Lower and Midtown Manhattan. Office vacancy rates edged up in Long Island and Westchester and Fairfield Counties but were still down from a year earlier, while rents were up modestly. Sales of office buildings were reported to be exceptionally strong in both Lower and Midtown Manhattan, though some weakening was reported in northern New Jersey. Industrial markets also strengthened: compared with a year earlier, vacancy rates were down and industrial rents were up nearly 7 percent across the New York City metropolitan region.
Other Business Activity
The securities industry, which had shown brisk growth in activity, revenues and profits in the first quarter, is reported to have weakened noticeably starting in mid-March and continuing into April, portending a second quarter slowdown. An industry contact reports fairly rapid escalation in wages and costs of most business inputs--consultants, auditing, printing, software engineering and other business and professional services, as well as catering and various business supplies.