March 3, 2010
Federal Reserve Districts
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The Second District's economy has shown some further signs of strengthening since the last report, despite some apparent slowing in the housing market; input price increases have become more widespread. In general, business contacts report ongoing improvement in overall conditions and some pickup in hiring activity. Many manufacturing contacts also indicate plans to increase employment and capital spending in the months ahead. General merchandise retailers mostly report that sales were ahead of plan in January, and up from a year earlier, though some report that snowstorms slowed business in February. Auto dealers report mixed but generally sluggish sales results for January and early February, though used car sales remain strong. Tourism activity in New York City has picked up since the last report, though snowstorms in much of the East appear to have crimped activity in early February. Commercial real estate markets have been steady to softer since the last report, while the sales/investment market remains exceptionally weak. Residential real estate markets were mixed to weaker in early 2010. Finally, bankers report weakening in loan demand in all categories, rising delinquency rates--mainly in the household sector--but some leveling off in credit standards on consumer loans and residential mortgages.
New auto sales have reportedly been steady to softer in early 2010. Auto dealers in the Buffalo area report that sales were exceptionally weak in December and remained sluggish in January, running 20 to 25 percent below a year earlier, though some pickup was reported in February. In contrast, contacts in the Rochester area report that sales ended 2009 on a very strong note, buoyed by incentives, but softened in early 2010, slipping about 10 percent below year-earlier levels. However, used car sales have reportedly been brisk across the board. Auto dealers note modest improvement in credit conditions.
Tourism activity in New York City showed signs of picking up since the last report. Manhattan hotels report that last December was the best on record in terms of the occupancy rate, which rose to 86 percent--up from 82 percent a year earlier. Business remained strong in January and early February, with occupancy rates remaining ahead of comparable 2009 levels by similar margins. This rise occurred despite a roughly 6 percent increase in the number of hotel rooms, indicating a fairly substantial increase in the number of visitors. Room rates have been fairly steady in recent months, after accounting for seasonal variation, but are still down roughly 10 percent from a year earlier. After a relatively sluggish holiday season in 2009, Broadway theaters report a noticeable pickup in business in January--total revenues were up nearly 20 percent from a year earlier, while attendance rose roughly 8 percent. Business tapered off markedly in the first half of February, but this likely reflects heavy snow in many parts of the East. Finally, surveys by both the Conference Board and Siena College indicate that consumer confidence in the region climbed to a roughly two-year high in January.
Construction and Real Estate
Commercial real estate markets across most of the District softened since the last report. Vacancy rates in Manhattan continued to climb, while asking rents continued to fall and were down more than 20 percent from a year ago. Vacancy rates also rose noticeably in Westchester and Fairfield counties, while asking rents were down by 6 percent. In most other areas around the District, however, vacancies and rents were relatively stable. Commercial real estate sales remained exceptionally weak across the board.
Other Business Activity
Looking at business conditions more generally, both manufacturing and non-manufacturing contacts report continued improvement since the last report. Manufacturing firms in the District note some further improvement in business conditions, along with modest increases in employment. Contacts remain optimistic about the general business outlook and anticipate widespread increases in new orders, as well as increased hiring and capital spending. Non-manufacturing contacts overall report continued modest improvement in business and a slight pickup in employment for the first time since the start of the recession; contacts remain mostly optimistic about the general business outlook and a growing proportion plan to expand capital spending and employment in the months ahead. Both manufacturers and other firms report increasingly widespread rises prices paid but little or no change in selling prices.
The spreads of loan rates over costs of funds increased for all loan categories--most notably in the commercial mortgage category. Respondents indicate widespread decreases in average deposit rates. Finally, respondents report continuing increases in delinquency rates for all categories except the commercial and industrial loan category, where rates are reported to have leveled off.