September 7, 2005
Federal Reserve Districts
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The Second District's economy has strengthened since the last report. Tourism has been exceptionally strong. Commercial real estate markets showed signs of tightening in July and August. Conditions in New York City's financial industry continued to strengthen since the last report, and Wall Street employment and compensation continue to expand. More broadly, there are indications that New York City area firms are stepping up hiring activity for the Fall season. Surveys of both manufacturers and purchasing managers indicate continued expansion in business activity in August. In contrast, retailers generally report that sales were below plan in August, hampered by unseasonably hot weather and rising energy prices. There are scattered signs of softening in the housing market, though the overall level of demand has remained fairly strong. Finally, bankers report a pickup in demand from the commercial sector but a dip in demand for home mortgage loans; delinquency rates also improved among commercial borrowers but were little changed in the household segment.
Tourism has continued to show exceptional strength since the last report. Manhattan hotels report that the overall occupancy rate rose more than 4 percentage points from a year earlier in July, to 86.2--the strongest July level on record--while average room rates were up nearly 15 percent. August is reportedly shaping up to be comparably strong. Broadway theaters indicate that attendance and total revenues slowed somewhat in the first three weeks of August; still revenues were running more than 5 percent ahead of a year ago, and industry conditions continue to be described as strong.
Construction and Real Estate
The market for existing homes is also reported to have softened somewhat. In New York State, July home sales were off more than 7 percent from a year earlier, though prices continued to run 10-20 percent ahead. There has been some noticeable weakening in some upstate New York regions; in contrast, both sales and prices in New York City continued to run well ahead of a year ago. A leading appraisal firm reports that Manhattan's co-op and condo market has shown no significant signs of slowing since mid-year--listing times have not changed noticeably, the inventory of unsold homes remains steady at a low level, and prices have continued to increase, though at a somewhat slower pace. Finally, a contact specializing in Manhattan's rental market indicates that while rents have not risen significantly, there is a dwindling inventory of available apartments.
Commercial real estate markets across the New York City area showed further strength in July and August. Since mid-year, office availability rates have fallen to a four-year low in Midtown Manhattan and declined moderately in Lower Manhattan and northern New Jersey. Availability rates were generally stable in the rest of the metropolitan area. Rates were little changed in the Lower Hudson Valley and southwestern Connecticut; on Long Island, rates ticked up but were still about ½ point lower than a year ago. Office rents continued to climb in Midtown Manhattan and Long Island but were little changed across the rest of the metro area. Industrial markets in and around New York City saw little net change in vacancy rates since the last report, but there has been notable escalation in rents.
Other Business Activity
Surveys of both manufacturers and purchasing managers indicate continued expansion in business activity in August. However, a number of contacts indicate growing concern about rising energy prices adversely affecting their business in the months ahead.