December 1, 2004
Federal Reserve Districts
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The Second District's economy has taken on a somewhat firmer tone since the last report, though a few areas remain sluggish. Cost pressures persist, but prices of final goods and services, aside from energy, remain stable. Labor markets continued to improve, on balance. Manufacturers indicate that activity remains on a moderate upward trajectory, and most contacts remain optimistic about the outlook for early 2005. In contrast, retailers report that sales were below plan in October, though a few note signs of a pickup in early November.
Commercial real estate markets have softened a bit since the last report, but housing markets remain robust. In New York City, tourism has shown signs of strengthening in recent weeks, reportedly buoyed by a pickup in both international and business travelers. Securities industry activity has picked up noticeably since the last report. Bankers report slight slowing in loan demand, unchanged credit standards and little change in delinquency rates.
Consumer confidence was mixed in October. Based on Siena College's survey of New York State residents, confidence rose modestly, led by a strong pickup in upstate New York. However, the Conference Board's survey of Middle Atlantic state (NY, NJ, PA) residents shows confidence slipping in October.
Construction and Real Estate
The market for New York City co-ops and condos has been brisk in recent weeks: one contact reports that volume has been running noticeably higher than a year ago since Labor Day and that prices are up roughly 5 percent from a year ago; another contact reports a surge in sales at the very high end (multi-million dollar homes), and also a further pickup in sales of smaller (1-bedroom and studio) apartments. Manhattan's rental market has been mixed but generally stronger, led by the downtown area, where there is reported to be strong demand and a limited inventory.
Office markets have slackened somewhat since the last report. Manhattan's office market was steady to slightly softer in October, as brisk leasing activity was more than offset by an increased flow of available space onto the market. Midtown Manhattan's vacancy rate held steady and asking rents edged up again. However, downtown's vacancy rate jumped to its highest level this year, and asking rents dipped. Albany's office market also showed signs of softening, with vacancy rates up roughly a point from a year ago; also, a jump in prices of building materials is reportedly making it more costly to refit office space for new tenants.
Other Business Activity
Manufacturers indicate steady, moderate growth in business activity, and continue to express widespread optimism about the outlook for the first half of 2005. The greatest concern expressed by manufacturers is increased competition from overseas; a few contacts also indicate that customers have recently been taking longer to pay their accounts. Among businesses more generally, rising energy prices appear to be the top concern. Purchasing managers in the Buffalo and New York City areas similarly report moderate improvement in activity, and fairly widespread increases in commodity prices.
Tourism has shown increased signs of strength in New York City. Airports report a strong increase in international arrivals, compared with 2003. There are also signs of a rebound in business travel. Manhattan hotels report that both occupancy rates and room rates were running well ahead of a year earlier in October, which is typically the top month for conferences and business travel. Moreover, bookings for most of December and next January are reported to be robust, with fewer hotels offering discounts. An industry contact projects that room rates will increase 12 percent in 2005, following a 9-10 percent rise in 2004. Attendance and revenues at Broadway theaters showed signs of rebounding in mid-November, after falling behind comparable 2003 levels in October and early November.