April 26, 2006 Federal Reserve Districts Second District--New York

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The Second District's economy has continued to expand since the last report, but the overall rate of growth may have slipped a bit. The labor market has grown increasingly tight, and there are signs that wages have accelerated in some sectors. More broadly, though, input price pressures remain widespread but do not appear to have intensified. Manufacturers report some deceleration in activity in recent weeks but continue to report increased employment. Despite unseasonably cool weather, retailers report that sales were generally close to plan in March and early April, though tourism has softened slightly since the last report. Consumer confidence improved in March. Housing markets showed ongoing signs of softening in the first quarter, though sales of Manhattan apartments reportedly picked up in March. Commercial real estate markets across the New York City metro area were mixed in the first quarter: office rents were up from the prior quarter, but rents on industrial space slipped. New commercial construction remains relatively sluggish, but residential development continues to be robust. Finally, bankers again report some weakening in loan demand, some tightening in credit standards on consumer and home mortgage loans, and an up-tick in delinquency rates. Consumer Spending Retailers report that sales were generally close to plan in March and early April, despite unseasonably cool weather over much of the period. Retail contacts continue to note that higher-end (premium) merchandise was selling a good deal better than lower-end lines. Sales of home furnishings have continued to lag most other categories. Overall, inventories are reported to be at favorable levels, and selling prices are little changed, on average. Tourism has softened slightly since the last report but remains at a high level. Manhattan hotels report that occupancy rates tapered off in February, but rebounded in March; still, occupancy rates have been running about 3 percentage points below comparable 2005 levels. However, room rates were reported to be up 10 percent from a year earlier in February and up 13 percent in March. Broadway theaters report that attendance slipped below comparable 2005 levels in March, while revenues were little changed, but both rebounded noticeably in early April. Consumer confidence in the region strengthened in March. Based on the Conference Board's survey of residents of the Middle Atlantic states (NY, NJ, PA), consumer confidence rose sharply in March, reaching its highest level in nearly four years. Based on Siena College's survey of New York State residents, confidence posted a more moderate gain, climbing to a 14-month high. Construction and Real Estate The region's housing market was mixed but generally softer in early 2006. New Jersey homebuilders report continued sluggish demand for new homes, reflecting some spillover of weakness from the existing market. Prices of new homes have leveled off, but builders have yet to make any significant downward price adjustments. The inventory of unsold existing homes is reported to have risen sharply over the past year--from a 3-month to a 7-month supply, based on concurrent sales activity. Manhattan's co-op and condo market was mixed in the first quarter. A major appraisal firm reports that prices were little changed from the prior quarter but still up 6 percent from a year earlier, while sales were down slightly from a year earlier; at the end of March, the inventory of apartments on the market was up 60 percent from a year earlier. A major Manhattan real estate firm similarly reports a sizable increase in the number of homes on the market and a leveling off in prices but notes that sales volume rebounded above comparable 2005 levels in March, with new developments accounting for a growing share of sales volume. In general, residential development in Manhattan remains strong. Commercial real estate markets were mixed in the first quarter. Office vacancy rates across the New York City metro area were mixed but down slightly overall; northern New Jersey's rate, though still relatively high, edged down to a nearly four-year low. Asking rents for office space were up sharply in Manhattan but were generally flat in the outlying markets. The industrial market showed signs of weakening: although vacancy rates were little changed, rents declined throughout the New York metropolitan area. Overall, commercial construction activity appears relatively stable--compared with 2005, there is reported to be somewhat less industrial construction underway but more office and hotel construction. Still, contacts note that the level of commercial development remains relatively low and note that a good deal of office and hotel space, predominantly in New York City, has been converted to residential use. Other Business Activity A major New York City employment agency, specializing in office jobs, reports that labor market conditions are increasingly tight, with a sizable number of job openings--particularly in financial and legal services--and fewer job seekers. This contact also estimates that salaries are up at least 15 percent from a year ago for experienced office workers, after several years of little change. A contact in the financial services sector reports continued brisk growth in both employment and compensation. New York State manufacturers also report continued expansion in employment levels in early April. More generally, though, while manufacturers are increasingly optimistic about the near-term outlook, they report a deceleration in general business activity and a particularly sharp slowing in new orders and shipments in April, following a strong March. Manufacturers also continue to report fairly widespread increases in input prices but more moderate increases in selling prices. Non-manufacturing firms in the district also report continued widespread increases in input prices and some acceleration in wages. Financial Developments Bankers at small to medium-sized banks in the 2nd District report decreased demand for all types of loans since the last report; decreased demand continues to be most evident in residential mortgages. Refinancing activity has also continued to weaken. Credit standards tightened slightly for consumer loans and residential mortgages but remained little changed for commercial mortgages and loans. Bankers again report widespread increases in both loan rates and deposit rates. Finally, bankers report somewhat higher delinquency rates on commercial and industrial loans, and marginally higher delinquencies on non-residential mortgage and consumer loans. Return to top Boston Philadelphia