November 30, 2005
Federal Reserve Districts
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Economic activity in the Second District has continued to expand at a steady pace since the last report, but with a fair degree of variation across sectors. Price pressures persist, particularly in manufacturing, but consumer prices remain generally stable. Manufacturers report some acceleration in activity in early November. Hiring activity has shown signs of picking up, for both factory and office workers. Conditions in the financial sector are reported to have strengthened, and bonuses are expected to be up substantially this year. Retailers continue to report lackluster sales, but tourism remains strong. Both commercial and residential real estate have shown signs of cooling, though New York City has shown more resilience than the rest of the region. Finally, bankers report widespread declines in demand for consumer loans and residential mortgages and note a moderate increase in consumer delinquencies.
Tourism has remained strong since the last report. Manhattan hotels report that business remained brisk in October, though perhaps a bit less robust than during the third quarter. Occupancy rates remained exceptionally high--near 90 percent--in October, though they slipped below year-earlier levels. Room rates hit record highs, 17 percent above a year earlier. Broadway theaters report further strengthening in business in late October and early November, with attendance up more than 15 percent from a year earlier and revenues up more than 20 percent. Also, passenger traffic at Buffalo Niagara International Airport is reported to have surged to record levels thus far in 2005, up an estimated 13 percent from 2004 levels.
Construction and Real Estate
Commercial real estate markets across the New York City metropolitan area were mixed in October: Lower and Midtown Manhattan's office markets continued to strengthen, while most of the suburban markets slackened moderately. Office vacancy rates climbed in Westchester and southwestern Connecticut, edged up in Long Island, and were little changed in northern New Jersey. Asking rents were flat across most of the region, but were up 3 to 4 percent in Midtown Manhattan and Long Island. Non-residential construction contracts in western New York State are reported to be running below comparable 2004 levels, but residential development has been brisk--construction has recently begun on a number of apartment projects in the Buffalo area, as well as a large hotel and casino 50 miles south of the city.
Other Business Activity
More broadly, manufacturing activity has shown signs of strengthening. While purchasing managers in the New York City and Buffalo areas report that activity was relatively flat in October, our latest survey of New York State manufacturers, conducted in early November, points to a broad improvement in business conditions and increased optimism about the six-month outlook. Manufacturers also note further increases in input price pressures and an increasing ability to hike selling prices.
Credit standards for all loan types remained unchanged except commercial mortgages, for which bankers reported tighter standards on balance. Higher loan rates were reported for all loan categories since the last report. Finally, delinquency rates remained unchanged across all loan categories except consumer loans, where bankers report some net increase in delinquencies.