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Federal Reserve Districts


Second District--New York

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Full report

The Second District's economy has strengthened noticeably since the last report, though hiring remains sluggish; price pressures have increased moderately but prices at the consumer level remain stable. Manufacturing-sector contacts report improved activity. Auto dealers note some pickup in sales in March, following a lull in February, while general merchandise retailers report improving sales in both months. Tourism activity in New York City has strengthened further since the last report. Commercial real estate markets have been steady to slacker. Residential real estate markets, though still sluggish, have shown scattered signs of improvement, especially at the lower end of the market. Bankers report steady to weaker loan demand, higher delinquency rates (except on consumer loans), and tighter credit standards.

Consumer Spending
Retailers report further strengthening in sales since the last report. Contacts report that general merchandise sales were on or ahead of plan in February and March, with year-over year gains in comparable-store sales running as high as 10 to 13 percent in March. While part of this strength was attributed to the earlier occurrence of Easter this year, most of it was ascribed to underlying strength in demand and rising consumer confidence. One large mall in the Buffalo area also notes strong spending by Canadian shoppers. While the strength in sales is reported to be fairly broad-based, a major retail chain notes particular strength in sales of seasonal apparel and big-ticket goods for the home. Inventories are reported to be in very good shape, and a number of retailers say they are discounting less heavily. Auto dealers report that sales remained sluggish in February but picked up noticeably in March. Credit conditions for car buyers have continued to improve, though floor-plan credit (for dealers) remains tight. Revenues from dealers' service departments are said to be doing relatively well. Contacts are generally optimistic about the outlook for the rest of 2010.

Tourism activity in New York City has continued to strengthen since the last report. Manhattan hotels report that business was relatively brisk in February and that preliminary indications for March show even more strength: occupancy rates have risen steadily and are estimated to be up 8 percentage points from a year earlier in March, despite an increase in the overall number of hotel rooms. Total revenue per room, which had been down more than 10 percent from a year earlier in late 2009, was estimated to be up 6 percent in March. Similarly, Broadway theaters report a noticeable pickup in business since the last report, following a weather-related lull in early February: March revenues were up 16 percent from a year earlier, while attendance rose 9 percent. Separately, The Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, Pa) slipped in February but rebounded in March, to just below a two year high.

Construction and Real Estate
Housing markets, though still weak, have shown some signs of improvement since the last report--especially at the lower end of the market. A contact that monitors New Jersey's housing industry notes that single-family building permits, though still sluggish, have picked up in early 2010. New home sales are steady at a depressed level, but resale activity has picked up somewhat. Another real estate contact in northern New Jersey notes that, while sales of homes in the $500K and up range remain sluggish, more moderately priced homes are selling fairly well, sometimes with multiple offers. There are reported to be relatively few distress sales of late. While prices have stopped declining across much of New Jersey, areas near New York City have seen the pace of decline accelerate somewhat. Realtors across New York State report a pickup in both sales and prices in early 2010, though most of the price increases were upstate. Buffalo-area home sales reportedly picked up in February and March, particularly at the lower end of the price spectrum--partly attributed to the extended homebuyer tax credit. Home prices in the Buffalo area were reported to be up more than 10 percent from a year earlier.

Manhattan's housing market remains sluggish, though there are signs of stabilization, especially in the rental market. Co-op and condo sales transactions were reported to have doubled in the first quarter from the depressed levels of a year earlier but were still down modestly from the 4th quarter of 2009. Prices were also down modestly for the quarter and continued to run roughly 20 percent below a year earlier, with milder declines on studio and 1-bedroom apartments but steeper price drops on larger units. Manhattan's apartment rental market showed further signs of stabilizing in March: rents edged up and were down just 1 percent from a year earlier, though vacancy rates rose modestly.

Commercial real estate markets were steady to softer since the last report. Manhattan's office vacancy rate continued to climb in the first quarter, though at a more subdued pace than in 2009; asking rents for Class A properties continued to run 20-25 percent lower than a year earlier. Still, a contact at a major brokerage firm notes a pickup in leasing activity and sees signs of stabilization in Midtown, though not in Downtown. Looking at the surrounding areas, office vacancy rates continued to drift down in Long Island, were steady in northern New Jersey, but continued to rise in Westchester and Fairfield Counties. Asking rents were down moderately (3 to 6 percent) in these markets. Office vacancy rates in most of upstate New York remain relatively stable--up a bit in the Buffalo and Rochester areas but down modestly in the Albany area. Asking rents are relatively steady in the Buffalo and Albany areas but down 3-8 percent from a year ago in metropolitan Rochester and down more steeply in the Syracuse area. Industrial (factory and warehouse) markets slackened throughout most of the District, with vacancy rates rising and rents falling. A real estate developer in the Buffalo area notes that commercial development and construction are increasingly sparse and that credit remains exceptionally tight.

Other Business Activity
A major New York City employment agency reports that activity picked up slightly in March but remains weak--in part, reflecting the holidays in the final week of the month. There continues to be very little hiring activity from major legal and financial firms. Still, a contact in the securities industry notes that layoffs have largely wound down and that some firms are looking to increase staff in regulatory compliance. Cash bonuses have been slashed for highly compensated employees, but some banks have reportedly raised salaries to offset part of the bonus cuts. More generally, the securities industry is reported to be faring relatively well, though there is some concern about the outlook: M&A and IPO activity remain dormant, profits generated by the secondary market are not seen continuing this year, and there remains concern about proposed tax and regulatory issues.

Looking at business conditions more generally, contacts outside the manufacturing sector continue to describe conditions as stable or rising modestly. However, manufacturing contacts in the District note improved conditions since the last report. A trucking-industry contact reports some pickup in business in recent months, though conditions remain weak. There are scattered reports of shortages of truck drivers--partly due to more stringent requirements for commercial drivers' licenses.

Financial Developments
Reports on loan demand were mixed across the consumer and commercial loan groups. Bankers indicate decreased demand in the consumer loan and residential mortgage categories, but little change in demand for commercial mortgages and loans. Bankers also reported decreased demand for refinancing. Respondents indicate a tightening of credit standards in all categories, most notably in the commercial mortgage category. Bankers report no change in the spreads of loan rates over costs of funds, except in the commercial mortgage category, where they report an increase. Respondents indicate widespread decreases in average deposit rates. Finally, respondents note increased delinquency rates for all categories except consumer loans, where they reported no change.

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Last update: April 14, 2010