September 3, 2003
Federal Reserve Districts
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The Second District's economy has given mostly positive signals since the last report. The mid-August power outage evidently had a minimal effect on overall economic activity-some impact was reported on retailers and contract employers. Retail sales, which were above plan in July, were close to plan, on balance, in the first three weeks of August; inventories were generally reported to be at desired levels. Manufacturing activity continued to improve in July and early August, and there was a noticeable pickup in port traffic.
Housing markets have continued to show strength, although some contacts view brisk summer activity as an artifact of rising mortgage rates. New York City's office market continued to improve in July, with particular strength in the Class B segment, and city hotels report increased business. Finally, bankers in the district report stable loan demand, little change in credit standards, and increased delinquency rates on commercial loans but decreased rates on home mortgages.
Manhattan hotels report that business was fairly strong in July and early August: while room rates were down about 3 percent from a year earlier, occupancies were up nearly 5 percent. As a result, total revenues were up, on a year-over-year basis, for the first time this year. While two major New York City hotels had to evacuate during the blackout, most were fully occupied-some offered discounts and even free rooms.
Construction and Real Estate
Manhattan's office market showed continued improvement in July, led by strong leasing activity in the Class B segment, largely from small to medium-sized firms. Overall, vacancy rates declined moderately in Midtown and Midtown South; Lower Manhattan's rate inched up but is still substantially lower than at the end of the first quarter. Asking rents appear to have leveled off this year but are still roughly 8 percent lower than a year ago.
Other Business Activity
The manufacturing sector has shown continued positive momentum in July and early August. Our monthly survey of New York State manufacturers shows continued improvement in conditions in early August. Buffalo-area purchasers report a strong snapback in manufacturing-sector conditions in July, following a brief slowdown in June. Similarly, Rochester purchasers report improved business conditions in both manufacturing and other sectors. Finally, New York City area purchasing managers report continued improvement in the manufacturing sector in July; there was some leveling off outside of manufacturing, where New York City respondents had been reporting weakening throughout the first half of the year. Purchasing managers in all three metropolitan areas report an upturn in input prices.
A major freight shipping terminal reports a noticeable increase in volume (mostly imports from Asia) since the beginning of August; total volume is reported to be up roughly 10 to 13 percent from a year earlier, and largely represents holiday-season retail merchandise. Part of the pickup reflects a trend toward more "all-water" services to the East Coast ports from Asia, and is spurring increased warehousing and distribution in New Jersey. The power outage at the port lasted less than four hours and had a minimal effect.
Interest rates rose for all types of loans-in particular more than three in four bankers report higher rates for residential mortgages, and more than half report an increase in rates for commercial mortgages. However, average deposit rates declined, with over half of bankers reporting lower rates, as opposed to one in six reporting higher rates. Bankers report that delinquency rates increased for commercial and industrial loans but decreased for residential mortgages.