April 15, 2009
Federal Reserve Districts
|Skip to content
The Second District's economy has continued to contract since the last report, though at a more subdued pace. Contacts in a number of industry sectors now report less widespread declines in business activity and express considerably more optimism about the near-term outlook, but continue to report ongoing weakening in employment. Retailers indicate that sales were weak but on or close to plan in both February and March, while inventories are generally said to be at satisfactory levels. Consumer confidence, though, remained at or near record lows in March, and tourism activity in New York City has been increasingly sluggish: both hotels and Broadway theaters report fairly steep drops in revenue over the past year. Commercial real estate markets have continued to deteriorate since the last report, while housing markets have been mixed but generally weak. Finally, bankers report widespread increases in demand for home mortgages, including refinancing, but steady to somewhat weaker demand in other loan categories; they also report further tightening in credit standards and continued, though not dramatic, increases in delinquency rates across all segments.
Consumer surveys show confidence indexes to be at or near record lows. The Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, Pa) slipped 2 points to another record low in March. However, Siena College's monthly survey of New York State residents showed confidence edging up a point in March, though it is still only moderately above its record low set last October.
Tourism activity in New York City has weakened a bit further since the last report. Manhattan hotels report steep year-over-year declines in revenue--down 33 percent in February and 35 percent in March--reflecting 20 to 25 percent drops in room rates, coupled with noticeably lower occupancy rates. Broadway theaters are also seeing continued weakening in business: they report that attendance picked up a bit more than the seasonal norm from February to March, but it was still down 16 percent from a year earlier. With average ticket price little changed, total revenues were down 15 percent from a year earlier.
Construction and Real Estate
The rental market for industrial space was steady to softer in the first quarter, as was the market for retail space. Manhattan's retail market softened more than others: while vacancy rates were steady at low levels, asking rents declined sharply for the second straight quarter, and a relatively large volume of new retail space is due to be completed in the fourth quarter of 2009, much of it still unleased.
Housing markets have continued to weaken in much of the District since the last report--particularly in the multi-family segment. New York City's rental market continued to soften in March: asking rents in Manhattan were estimated to be down just 5-6 percent from a year earlier, but with the growing prevalence and size of concessions (waiving of rental fees, 1-3 months free rent, etc.), effective rents have reportedly fallen much more sharply--especially in full-service buildings. The inventory of rental listings has continued to increase, particularly in non-doorman buildings; one large brokerage firm reports that the rental vacancy rate has nearly doubled over the past 12 months. Manhattan's apartment sales market deteriorated markedly in the first quarter: the median sales price for condo re-sales was down 16 percent from a year earlier, while co-op prices fell 22 percent. The number of sales transactions fell nearly 50 percent from a year earlier, while the inventory (number of units listed) jumped 34 percent. Moreover, an industry contact maintains that there is a sizable "shadow" inventory of apartments--new condo units that are unsold but not yet listed. While quarterly data are not yet available for other parts of New York City, Brooklyn's market has reportedly slackened to an even greater extent than Manhattan's, largely due to a huge supply of newly constructed units.
The market for single-family homes has been mixed but generally weaker since the last report. A New Jersey industry consultant notes that resale activity, though still sluggish, picked up a bit in March--even after accounting for seasonality--but only on properties with fairly steep price reductions. However, a real estate broker in northern New Jersey maintains that traffic has been unusually quiet in recent weeks. Both contacts estimate that prices are off about 20 percent from their peaks, on average, and note that much of the activity is in "short sales", where the mortgage holder agrees to forgive part of the debt to the extent that it exceeds the selling price. Real estate contacts in upstate New York indicate somewhat more favorable market conditions. Home prices in the Buffalo-Niagara Falls area have reportedly remained steady thus far in 2009, though sales activity has fallen roughly 20 percent from 2008 levels. Contacts in both upstate New York and northern New Jersey note that the new tax credit for first-time home buyers has spurred at least some interest among potential buyers. Industry contacts throughout the District indicate that new home construction is running substantially lower this year than in 2008.
Other Business Activity