January 12, 2011
Federal Reserve Districts
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The Second District's economy has shown further signs of improvement since the last report. Hiring has continued to pick up outside of the manufacturing sector. Business contacts in most sectors report improved conditions and express widespread optimism about the near-term outlook. Cost pressures have risen but consumer prices have remained generally stable. Retail sales over the holiday season were generally strong and ahead of expectations, though post-holiday sales were adversely affected by the late-December blizzard. Tourism activity has remained brisk and consumer confidence has improved moderately since the last report. Commercial real estate has been mixed: there have been scattered signs of improvement in the office market, but the market for industrial space has weakened. Housing markets have also been mixed but generally weak. Finally, bankers report mixed loan demand overall and tightening credit standards on commercial loans and mortgages.
Automobile sales were mixed but generally at favorable levels, as both retail and wholesale credit conditions continued to improve. Rochester-area dealers report that sales of new autos surged 24 percent from a year ago in November and appear to be running about 10 percent ahead in December, helped by incentives. On the other hand, dealers in the Buffalo area report that sales were down slightly from a year earlier in November and remained fairly sluggish in December; the inclement weather was seen to be a factor.
Tourism activity in New York City has remained fairly brisk since the last report. Manhattan hotels report that occupancy rates remained close to 90 percent in November and December, while room rates continued to run nearly 10 percent ahead of comparable 2009 levels. The late-December snowstorm appears to have had little net effect on occupancy: while many visitors had to cancel their reservations, others who were unable to leave extended their stays. Broadway theaters report that both attendance and total revenues were running about 10 percent ahead of a year earlier in late November and most of December, despite the recent closing of a number of shows. Theaters remained open during and after the post-Christmas blizzard, though attendance is expected to be down noticeably. The Buffalo area saw a modest pickup in tourism during the final week of December, buoyed by a worldwide junior hockey tournament. Finally, the Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, PA) climbed in both November and December, ending the year at the highest level since May.
Construction and Real Estate
Commercial real estate markets have been mixed, with scattered signs of improvement in the office market, but some softening evident in the industrial market. In New York City, office leasing activity rose to a four-year high, though much of the new leasing reportedly involved companies moving around (often to smaller quarters). Still, there was some net absorption of office space, and vacancy rates declined moderately. Asking rents were generally stable but rose in some prime areas of Manhattan. There were also signs of modest improvement in the Buffalo and Rochester areas, where vacancy rates edged down and rents were up 4 to 5 percent from a year earlier. On the other hand, office vacancy rates climbed and rents edged down in Long Island, while markets in northern New Jersey, Westchester and Fairfield County (CT) were stable. Industrial vacancy rates were little changed, but rents declined across most of the District--particularly in the Albany and Rochester areas, and in New York City. Both residential and commercial construction activity remain at exceptionally low levels throughout the District. A commercial developer in western New York State notes that many small sub-contractors have exited the business and medium-sized firms are struggling.
Other Business Activity