August 6, 1997 Federal Reserve Districts Second District - New York

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The Second District's economy expanded at a somewhat faster rate than in the last report, led by a rebound in consumer spending. Retail sales, which had been held down by unseasonably cool weather for most of the second quarter, picked up in late June and were ahead of plan in July. Office markets throughout the New York metropolitan area continued to tighten in the second quarter, though rents in most areas have risen only modestly. Housing markets continued a trend of gradual improvement in New Jersey and downstate New York but remained depressed in upstate New York. Regional purchasing managers' reports indicate moderate growth in manufacturing activity in June. Price pressures in the District remained subdued. Finally, local banks report some softening in demand for consumer and non-residential mortgage loans, along with a further decline in delinquency rates. Consumer Spending Most major retailers in the region report that sales were on or above plan in June and well above plan in the first half of July. Compared to a year ago, same-store sales gains for June and early July ranged from 2 to 7 percent. Sales of seasonal merchandise (air conditioners, summer clothing, lawn & garden, etc.) picked up noticeably starting in mid-June and continuing into July; this was attributed to the later than usual arrival of hot weather and represented purchases deferred from springtime. Some contacts, though, noted that sales improved across the board, and not just in seasonal categories. In most cases, women's apparel continued to be the strongest segment; a couple of contacts report that sales of home furnishings improved in recent weeks and were ahead of plan. Virtually all of the retailers surveyed report that inventories are in "great shape" thanks to the recent pickup in sales of summer-related merchandise. All contacts reported that merchandise costs are essentially flat, and that selling prices are flat to declining. Retail wage pressures remain subdued, although one contact reports that labor costs have begun rising�mostly for new hires. Construction and Real Estate The region's housing market has not changed much since the last report. Prices of Manhattan co-ops and condos, which had surged in March and April, held steady at higher levels in May�up 25 percent from a year ago. New apartment construction in New York City and northern suburbs continued to expand in June�for the first half of 1997, twice as many units were authorized by building permits as a year earlier. Recent changes to New York State's rent-stabilization regulations were relatively modest and should have little impact on average rents in the short run. Sales and prices of existing single-family homes are up moderately from a year ago in downstate New York and New Jersey, but are down across most of upstate New York. Similarly, permits to build single-family homes have been trending up in the New York City area and are near an 8-year high; however, in upstate New York, permits are down more than 15 percent from a year ago and at their lowest level since the 1981-82 recession. Builders in northern New Jersey report that sales of new homes were "okay but not great" in June and early July. While selling prices are flat, a major concern among builders is high and escalating land costs, reflecting a dearth of usable land. Commercial real estate markets across the New York City metropolitan area continued to tighten in the second quarter. Midtown Manhattan's office availability was 11.3 percent at the end of June, down from 11.5 percent a month earlier; Downtown's rate declined to 21.0 percent from 21.2 percent. Both rates fell by a full point during the second quarter. Similarly, vacancy rates continued to trend down in northern New Jersey, Long Island, Fairfield, and Westchester Counties in the second quarter. However, average rents were up only modestly in most areas, except in northern New Jersey, where they have accelerated steadily over the past four quarters and are up 7.5 percent from a year ago. Other Business Activity Regional purchasing managers report mixed but generally favorable conditions in the region's manufacturing sector in June, along with negligible price pressures. Buffalo purchasing managers report that new orders and production activity continued to expand, though at a considerably slower pace than in May; purchasers also reported a pause in job growth and stable commodity prices. Similarly, Rochester purchasing managers grew less upbeat about general business conditions in June (though positive responses continued to outnumber negatives), but they also noted strength in the local labor market and an abatement of commodity price pressures. Finally, New York City area purchasing managers report sharp improvement in business conditions in both the manufacturing and non-manufacturing sectors in June, accompanied by a slight pickup in price pressures. New York City implemented two new transit-fare changes on July 4th that reduced commuting costs for some residents: free electronic transfers between bus and subway (ending "two-fare zones"), and elimination of the 50-cent Staten Island Ferry fare. Financial Developments In the latest survey of small and medium sized banks in the Second District, senior loan officers reported stable demand for residential mortgage and commercial and industrial loans over the past two months, but softening demand for consumer and non-residential mortgage loans. Refinancing activity was unchanged. Willingness to lend increased on net, with 19 percent of bankers reporting that they were more willing to lend and none reporting they were less willing. Credit standards remained stable. Interest rates decreased for all categories of loans, with 36 percent of banks surveyed reporting lower rates. This decrease was especially evident in residential mortgages, with 50 percent of banks lowering rates. Average deposit rates increased, with over 36 percent of banks reporting higher rates. Delinquency rates continued to decline for all types of loans except residential mortgages, for which delinquencies remained stable. Return to top Boston Philadelphia