January 17, 2007
Federal Reserve Districts
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The Second District's economy has continued to expand at a moderate pace since the last report, though recent performance has been mixed across sectors. There are some indications of a pickup in cost pressures but no discernible acceleration in consumer prices. Retailers generally indicate that holiday season sales were on or slightly above plan, with much of the strength coming in the second half of the month; retail prices were again reported to be little changed, with promotional discounts roughly the same as a year ago. Tourism activity has strengthened further since the last report. Two regional consumer surveys showed confidence retreating slightly in December, but remaining at fairly high levels.
Manufacturers have grown less positive in their assessment of current business conditions in early January, though they remain optimistic about the near-term outlook, and contacts note some intensifying in price pressures. Housing markets remain mixed: New York City's rental market has shown continued strength, and Manhattan's co-op and condo market picked up in the fourth quarter, with sales rising and inventory retreating from very high levels. However, the market for single-family homes in both northern New Jersey and upstate New York remains sluggish. New York City's office market grew increasingly tight at year end with vacancies falling and rents climbing rapidly. Finally, bankers report further weakening in loan demand in the household sector, especially for home mortgages; they also indicate a moderate increase in consumer delinquency rates.
Based on the Conference Board survey of Middle Atlantic residents, consumer confidence edged down in November and December, after reaching a 6-year high in October; similarly, Siena College's survey of New York State households shows confidence levels retreating modestly in December from a 5 1/2-year high in November.
Tourism activity in New York City continued to strengthen since the last report. Broadway theaters report a stronger than usual pickup in business during the holiday season: attendance was up more than 10 percent from a year earlier, while total revenue was up nearly 20 percent. Similarly, Manhattan hotels report continued strong revenue growth in November and December, with many hotels at or near full occupancy and average room rates up well over 10 percent from a year earlier.
Construction and Real Estate
Single family construction activity in New York and New Jersey, as measured by housing permits, continued to weaken in November, slipping by roughly 30 percent from a year earlier, but multi-family permits were roughly on par with a year earlier. More recently, New Jersey homebuilders report that the market stabilized somewhat in December but remains weak. Discretionary sellers in the resale market are reported to be withdrawing from the market, which has reduced the inventory of existing homes on the market, but has also reduced the pool of new home buyers. Builders indicate that they have substantially cut back plans for new development in New Jersey (especially in active-adult communities) and this is seen as slowing construction activity in 2007. New York State Realtors report that both sales and prices for single-family homes were running lower than a year earlier in the fourth quarter. However, Manhattan's co-op and condo market showed resilience in the fourth quarter; though prices were little changed, sales activity picked up noticeably, after a sluggish third quarter, and the number of listings (inventory), though still quite high, declined. Manhattan's apartment rental market has continued to strengthen since the last report; a contact at a major real estate firm characterizes conditions as extremely tight at year end. Compared with a year ago, rents are up an estimated 5 percent, with larger increases on smaller, entry-level units in recent months. While the rental supply is constrained by a limited number of new rental buildings under development, a significant proportion of new condos are being bought by investors, who have then leased them.
Other Business Activity