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Federal Reserve Districts

Second District--New York

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The Second District's economy has shown scattered signs of a pickup since the last report. The labor market has given mixed signals, with some signs of strengthening in manufacturing, but ongoing weakness in hiring in other sectors. Manufacturing sector contacts report increased activity and remain optimistic about the near-term outlook. Auto dealers indicate that sales declined sharply in September, as expected, reflecting the end of the cash-for-clunkers program, as well as depleted inventories. However, general merchandise retailers report that sales improved in September and were ahead of plan and roughly on par with a year earlier. Consumer confidence, though still low, has moved up moderately since the last report. Tourism activity in New York City has been sluggish but relatively steady, with leisure visitors partly offsetting an ongoing pronounced slump in business travel.

Commercial real estate markets--in both the office and industrial categories--have been steady to moderately weaker since the last report. Residential real estate markets have been mixed since the last report, but generally weaker, especially at the high end of the market. Home sales activity reportedly rebounded a bit from depressed second quarter levels, but prices, as well as rents, have continued to decline. Finally, bankers report rising delinquency rates--particularly on consumer and commercial mortgage loans--along with ongoing tightening in credit standards; loan demand continued to decline, except for residential mortgages, where bankers report some pickup in demand.

Consumer Spending
Retail sales picked up noticeably in September and were mostly above plan; on a same-store basis, sales were generally little changed from a year earlier, though year-to-year declines were still seen in upstate New York. Retail sales in New York City, which had until recently been lagging other areas, have improved considerably since the last report--particularly for one higher-end department store chain. In upstate New York, however, high-end retailers report relatively weak sales. Sales of new automobiles remained strong through August but weakened substantially in September. The recent sharp weakening was attributed to the end of the cash-for-clunkers program, as well as depleted inventories of new vehicles, and was not unexpected. Auto dealers also note that credit conditions for consumers, though still problematic, have improved somewhat of late.

Consumer confidence measures, while still low, have risen moderately since the last report. Among residents of the Middle Atlantic states (NY, NJ, PA), confidence rose to its highest level in a year and a half in September, according to the Conference Board. Siena College reports that consumer confidence among New York State residents was little changed in September, after jumping to a more than one-year high in August. Tourism activity in New York City has remained sluggish but steady since the last report, with an ongoing pronounced slump in business travel partly offset by leisure visitors. Manhattan hotels report that occupancy rates were steady in September, while room rates continued to run 25-30 percent down from comparable 2008 levels. Revenues were down roughly 30 percent from a year earlier. Bookings for October suggest that occupancy rates may be somewhat higher than a year earlier, though advance bookings for November appear relatively soft at this point. Broadway theaters report that attendance picked up somewhat in September and early October but remained slightly lower than a year earlier; ticket prices remained roughly 15 percent above last year's levels, pushing total revenue 10 to 15 percent ahead of year-ago levels.

Construction and Real Estate
Commercial real estate markets in the District were steady to softer since the last report. Manhattan's office vacancy rate continued to climb in September and for the third quarter overall, while asking rents continued to drop and were again down about 20 percent from a year earlier (not counting increased concessions by landlords). In the rest of the New York City metropolitan region, however, office markets have slackened only marginally. Industrial vacancy rates are up slightly in northern New Jersey, Long Island and Westchester, while asking rents have fallen moderately in all these areas except Westchester, where they have held steady.

Housing markets remain sluggish across the District, though sales activity has picked up in certain areas. A New Jersey contact indicates that resale activity is inching upward, though prices continue to be depressed due to a substantial volume of foreclosures and short sales. New home sales remain flat in northern New Jersey, though the inventory is gradually diminishing, due to a lack of new development. In western New York State, home sales activity reportedly slowed in August and remained relatively sluggish in September, while prices generally remained steady; contacts express concern that the upcoming expiration of the $8,000 tax credit for first-time homebuyers will adversely affect sales and prices. Manhattan's apartment sales market remained weak in the third quarter. Sales activity rebounded moderately from the prior quarter but remained lower than a year earlier; prices continued to decline and were estimated to be down 18 percent from a year earlier on a per-square-foot basis. The inventory of listings declined modestly, but the average number of days on the market continued to climb. Manhattan's rental market slackened further in September, with average asking rents continuing to run about 10 percent below a year earlier; in addition, landlords are reported to be offering increasingly generous concessions--waiving fees and offering one or more months of free rent. Vacancy rates are reported to have edged down seasonally, but this is expected to reverse in the upcoming (typically slower) winter season.

Other Business Activity
A major NYC employment agency, specializing in office jobs, reports renewed softening in recent weeks: there is said to be only scattered hiring at financial institutions, and activity has virtually ground to a halt in the legal and publishing industries. A finance-sector contact indicates that employment continues to decline, though at a more subdued pace than in the first half of the year. However, compensation--especially cash compensation--has reportedly fallen sharply, and is expected to fall further during the remainder of the year and into 2010, most notably for the top earners in the industry. At non-manufacturing firms more generally, most contacts continue to report steady or declining staffing levels, and respondents remain widely negative about the general business climate; however, a growing proportion anticipate adding workers over the next three to six months.

Manufacturing firms in the District report a further pickup in business activity since the last report, as well as some upturn in employment at their firms for the first time in more than a year. Respondents are also increasingly optimistic about the near-term outlook and expect to hire more workers and spend more on capital, on balance, in the months ahead. Both manufacturers and other firms report moderate increases in prices paid but little or no change in selling prices; looking to the months ahead, though, non-manufacturers anticipate modest increases in prices received.

Financial Developments
Bankers report decreased demand for all types of loans except residential mortgages, where they report an uptick in demand. Demand for residential mortgages is reported as higher by 38 percent of bankers, compared with only 16 percent reporting decreased demand. For all loan categories, respondents indicated a tightening of credit standards, ranging from 24 percent in the residential mortgage category to 30 percent for commercial mortgages; virtually no banker reports easing in credit standards. Respondents report widespread decreases in average deposit rates. Finally, bankers note increased delinquency rates for all loan categories, most notably in the consumer loan category.

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Last update: October 21, 2009