June 11, 2003
Federal Reserve Districts
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The Second District's economy has shown fairly widespread signs of a pickup since the last report, although businesses note diminished input price pressures. The labor market appears to be strengthening, mainly in and around New York City. Retail sales were mixed in May, with inclement weather hampering sales of seasonal merchandise. According to two separate surveys, consumer confidence improved again in May. Manufacturing activity also appears to have picked up in May.
Both home construction and the market for existing homes have been steady and fairly strong since the last report, and there are signs of a pickup in New York City's office market. Finally, bankers in the District report increased loan demand, especially for home mortgages, slight improvement in delinquency rates, and steady to slightly tighter credit standards.
Most retailers indicate that both selling prices and merchandise costs have declined, particularly for apparel, electronics, and lumber. Inventories are generally reported to be on the high side, but most contacts characterize them as manageable; overstocks of seasonal merchandise are expected to sell briskly once hot weather arrives. Separately, a western New York association of automobile dealers reports that vehicle sales weakened in May and characterized inventories as high and rising. As of June 1, New York State's sales tax was increased ¼ percentage point, and moderately priced clothing (under $110) is no longer exempt from sales tax; a number of counties, as well as New York City, are also increasing their sales tax rates.
Two separate surveys point to further improvement in consumer confidence in May. Siena College's monthly survey of New York State residents showed confidence rising in May for the third consecutive month. Similarly, the Conference Board reports that confidence in the Middle Atlantic states--New York, New Jersey, and Pennsylvania--rose for the second month in a row.
Construction and Real Estate
The market for existing homes has also shown signs of renewed strength. Median home prices have continued to register double-digit price gains over the past year across northern New Jersey, downstate New York, and the Albany area. However, prices across much of upstate New York were up only modestly. The number of transactions, however, has been running below 2002 levels, with some contacts attributing this to a lack of inventory.
Manhattan's co-op and condo market showed signs of renewed strength in May. A major real estate agent and a leading residential appraiser both report a pickup in sales in May, though volume was down from the exceptionally busy period a year ago. Selling prices have remained stable overall, with small apartments seeing modest price appreciation, but larger units seeing modest price declines.
New York City's office market has shown signs of improving recently, after weakening in the first quarter. In particular, brisk leasing activity in Lower Manhattan-largely from the health sector-pushed that area's vacancy rate down sharply to its lowest level in one year, though asking rents continue to run more than 20 percent below the 2000 peak levels. Midtown Manhattan's vacancy rate was little changed.
Other Business Activity
Manufacturing industry contacts report fairly widespread improvement since the last report as well as diminishing input price pressures. Similarly, the May survey of New York City-area purchasing managers shows continued improvement in manufacturing sector conditions, though Buffalo-area purchasers report some weakening in activity. In both areas, purchasers indicate diminished price pressures.