July 28, 2004
Federal Reserve Districts
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Economic growth in the Second District appears to have moderated somewhat since the last report, though most sectors remain buoyant. While input price pressures persist, prices of most consumer goods and services have advanced at a relatively modest pace. The labor market has shown further improvement, though to a lesser degree than earlier in the year. Retailers report that sales softened in June and early July, while selling prices were up slightly, due to less discounting. Business surveys conducted in June and early July suggest some renewed strength in manufacturing-sector activity, and continued upward pressure on input costs.
The housing market remains strong, though not quite as robust as the spring--the sales market has moderated a bit, while the rental market has strengthened. Residential construction remains firm, while construction costs have moderated somewhat. Office markets in the New York City area were mixed at mid-year. Tourism has been particularly robust in recent months, with brisk gains in air travel, hotel occupancy, and theater attendance. Finally, bankers report across-the-board declines in delinquency rates, slight weakening in household loan demand, but further increases in demand for business loans.
Consumer confidence was, again, little changed in June. Based on Siena College's survey of New York State residents, confidence edged down last month, led by a dip in the New York City area. At the same time, the Conference Board's survey of Middle Atlantic state (NY, NJ, PA) residents shows confidence rising modestly in June, reversing a modest dip in May.
Construction and Real Estate
Office markets in the New York City area have been mixed. Vacancy rates have edged down further in Long Island, Fairfield County (Connecticut), and both Midtown and Lower Manhattan. In contrast, northern New Jersey's vacancy rate reportedly ended the second quarter at almost 18 percent, the highest level in nearly a decade. Westchester County's rate rose moderately but was still lower than a year ago.
Other Business Activity
Our latest monthly survey of New York State manufacturers indicates further strength in business conditions in early July; continued widespread increases in input costs were noted, but only about one in four firms indicate that they have raised their selling prices. Similarly, June surveys of purchasing managers in both the New York City and Buffalo areas indicate improved business conditions in June. Buffalo purchasers report increasingly widespread gains in both production and new orders, while New York purchasers indicate a resumption in manufacturing sector growth, following a May lull. Purchasers in both areas again report increasing input prices, though these were a bit less widespread than in recent months.
Tourism-related industries continue to turn in very strong results. Airport passenger traffic, year-to-date, is up 15 percent from 2003 levels at New York City area airports and up 10 percent at both Buffalo-Niagara and Greater Rochester airports. Manhattan hotels report that revenue was up more than 20 percent from a year earlier in June, reflecting a 7 percent increase in occupancies and a 14 percent rise in average room rates. Broadway theaters report a further acceleration in business in June and early July, as total revenues were up roughly 12 percent from a year earlier; virtually all of the increase reflects higher attendance, while the average ticket price was little changed.
Loan rates increased across all categories, with the commercial and industrial segment loan rates registering the most widespread increase. Average deposit rates are reported to be steady to higher. Credit standards remained unchanged according to virtually all respondents. Finally, bankers report lower delinquency rates across all loan categories.