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Economic growth in the Second District has moderated somewhat since the last report. Sales at large retailers slowed a bit in September but were back above plan in early October. The commercial real estate and multi-family housing markets continued to strengthen in the third quarter, while the
single-family sector lost some momentum. Private-sector job growth moderated in September, though the general trend is still fairly positive. The region's manufacturing sector gave mixed signals in September: strong reports from purchasing managers belie an acceleration in manufacturing job losses.
Price pressures remain generally subdued, aside from New York City apartments and hotel rooms. Finally, an increasing proportion of banks report rising delinquency rates in all major lending categories.
Retail sales in the district were, on balance, close to plan in September, but rose above plan in early October. For the first half of October, same-store sales gains ranged from 2 to 10 percent. All of the major retail chains surveyed cite apparel (especially high-end apparel) as the strongest category of merchandise. Home appliances and electronics continued to lag other categories of merchandise, though one contact noted strength in home-improvement goods. Inventories were generally at desired levels, as the industry stocks up for the holiday season. Most retailers are planning for 2 to 4 percent same-store sales gains during the Christmas season, though a few expect stronger gains.
Retailers report stable input costs but some increase in effective selling prices. Merchandise costs are generally flat, though a few contacts cite cost reductions resulting from intensive negotiating; wage growth remains steady and modest. However, effective selling prices are up moderately, as retailers are discounting less aggressively than a year ago a trend that is expected to prevail through the holiday season.
Construction and Real Estate
The region's commercial real estate markets continued to strengthen since the last report, with brisk leasing activity and declining availability rates across most of the New York metropolitan area.
(Availability rates include vacant space, as well as space coming on the market over the next six months to a year). Office availability rates continued to decline in both downtown and midtown Manhattan in September. Availability rates in Long Island, northern New Jersey, and southwestern Connecticut fell during the third quarter and were well below year-earlier levels; however, rates edged up in the smaller Westchester County market. Asking rents for prime (Class A) office space throughout the metropolitan area have been essentially flat over the past year.
The District's residential real estate markets were mixed in the third quarter. Realtors in New York and New Jersey report that sales of existing single-family homes slowed from the second quarter's brisk pace. Builders in New Jersey describe the market for new single-family homes as steady; while traffic is fairly good, potential buyers still seem to be concerned about corporate layoffs and relocations. Despite a modest rebound from depressed 1995 levels, construction of single-family homes is still low.
In contrast, the multi-family sector continued to gain momentum. Rising demand for apartments in and around New York City along with lean inventories is evidently boosting prices and spurring new construction, which had been mostly dormant since the late 1980s. A quarterly survey covering
prime Manhattan co-op and condo sales shows prices up 11 percent in the third quarter from a year earlier. Over the same period, permits to build apartments in down-state New York surged more than three-fold, pushing the cumulative year-to-date total to a seven-year high.
Regional surveys of purchasing managers suggest continued strength in the manufacturing sector in September. New York City area purchasing managers report sharp improvement in local manufacturing-sector conditions in September. The Buffalo-area survey indicates that production
expanded at a somewhat slower pace than in August, but new orders and job growth accelerated. Both groups report a modest increase in price pressures.
Other Business Activity
New York's unemployment rate declined from 6.1 percent to 5.9 percent in September, but New Jersey's edged up 0.1 point to 6.2 percent. Private-sector job growth slowed moderately in September,
largely reflecting an acceleration in manufacturing job losses. The region's bellwether industry, Wall Street, has generated strong job and income growth, and is expected to pay out record bonuses in the months ahead. Historically, this sector has been a fairly good leading indicator of job growth in other local sectors. Tourism remains strong, with hotels persistently running close to full occupancy. The baseball playoffs and World Series may have given a modest boost to local tourism-related businesses (restaurants, bars, souvenirs, etc.) but likely had a negligible impact on the region's overall economy.
Based on the latest survey of senior loan officers at small and medium sized banks in the Second District, demand for nonresidential mortgage loans strengthened moderately since the last report; however, demand for consumer loans, residential mortgages and commercial and industrial loans was stable. Refinancing activity for all types of loans was down. Willingness to lend continued to increase for all categories; however, there was a general tightening in credit standards. Delinquency rates, which had been fairly steady for most of the year, rose in all loan categories overall, 44 percent of banks report that delinquency rates increased since the last report, while 22 percent report that they declined.
The survey results suggest mixed trends in loan rates. Residential mortgage rates increased; consumer loan and nonresidential mortgage rates remained fairly stable; commercial and industrial loan
rates declined slightly. Average deposit rates continued to rise.