July 28, 2010
Federal Reserve Districts
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The Second District's economy has shown further signs of strengthening, on balance, since the last report. Input price pressures have receded a bit, while consumer prices appear to be steady. There are signs of improvement in the labor market across a range of industries. Manufacturing-sector contacts report some recent leveling off in business activity, after a strong second quarter. General merchandise retailers report ongoing improvement in business, with sales running on or above plan and inventories reported to be at favorable levels. Auto dealers report that sales have tapered off in recent weeks but remain ahead of 2009 levels. Tourism activity in New York City has continued to be robust since the last report, helped by a reported pickup in business travel. Commercial real estate markets have generally been steady since the last report, while residential real estate markets have shown signs of softening. Finally, bankers report a pickup in demand for both consumer and home mortgage loans but some slippage in demand for commercial loans and mortgages; they also report declining consumer delinquency rates and less widespread tightening in credit standards than in recent months.
An association of auto dealers in upstate New York reports that sales of new autos, which were up 10 percent from a year earlier in May, retreated a bit in June but were still up moderately from comparable 2009 levels. Used auto sales have been running lower than a year ago, due largely to lean inventories. Dealers report that retail credit conditions have remained favorable and that wholesale credit conditions have improved. Consumer confidence weakened noticeably in June: The Conference Board reports that confidence among residents of the Middle Atlantic states (NY, NJ, Pa) fell to its lowest level this year, and Siena College's latest survey of New York State residents shows confidence slipping to its lowest level in more than a year.
Tourism activity in New York City has grown increasingly robust since the last report. Manhattan hotels indicate that occupancy rates rose to a record high for May and remained exceptionally high in June--even with a sizable increase in the number of hotel rooms over the past year. Room rates are running 10 to 15 percent higher than a year earlier, and total revenues are reported to be up more than 20 percent. Much of the recent improvement is attributed to a rebound in business travel. Broadway theaters report that attendance remained brisk in June but tapered off moderately in early July. Revenues were up 3 percent from a year earlier in June and little changed in July.
Construction and Real Estate
In New York City, conditions were more mixed, with co-op and condo sales activity picking up in the second quarter but prices generally holding steady. The number of apartment sales rose by a bit more than the seasonal norm in the first quarter. The median sales price of an apartment was down 7 percent from a year ago in Queens but up 5 percent in Brooklyn. In Manhattan, the median price rose roughly 8 percent from a year earlier, but the price per square foot was virtually unchanged. Manhattan's rental market, though still well below its peak of a few years ago, appears to be on the rebound: leasing activity picked up noticeably, rents have stabilized, landlords are giving less generous concessions, and the inventory of available rentals has declined.
Commercial real estate markets across the District were mixed but, on balance, little changed since the last report. Office leasing activity picked up considerably in New York City, and vacancy rates declined modestly, but asking rents are still down more than 20 percent from a year ago. Vacancy rates were steady in Long Island and Northern New Jersey, while asking rents were down slightly--compared to both the first quarter and a year earlier. In Westchester and Fairfield counties, market conditions improved slightly, as vacancy rates edged down and asking rents rose. Office markets were mixed in upstate New York: vacancy rates edged up in most major markets but asking rents continued to run modestly above year-ago levels. Industrial markets were mostly softer in the second quarter: industrial vacancy rates rose across most of upstate New York and in Westchester and Fairfield counties but were little changed in Long Island and down modestly in northern New Jersey. Industrial rents were down moderately from a year ago in most areas. Finally, Manhattan's retail leasing market picked up in the second quarter, while northern New Jersey's remained stable. Commercial development remains very sluggish in general, though developers plan further hotel construction in New York City.
Other Business Activity
A major NYC employment agency, specializing in office jobs, reports that hiring activity has picked up since the last report, as demand from the legal sector remains brisk and financial sector hiring has picked up in recent weeks. Salaries for administrative jobs have started to edge up. There has been a relatively light flow of 2010 college grads looking for jobs. Separately, a securities-industry contact notes that, while there are ongoing layoffs in certain areas related to mergers and restructuring, major firms are hiring in the areas of accounting, compliance, and systems development. Compensation at large financial firms is reported to be holding relatively steady.
Respondents indicate a tightening of credit standards for all categories except consumer loans, though the tightening across all segments is reported to be less widespread than it has been at any time in the past three years. Spreads of loans rates over cost of funds are indicated to be steady for consumer loans and residential mortgages but higher on commercial loans and mortgages. Banks mostly indicate that average deposit rates have decreased. Finally, respondents reported a decrease in delinquency rates for consumer loans but little or no change in delinquencies in other loan categories.