September 3, 2008
Federal Reserve Districts
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The Second District's economy has shown signs of stabilizing since the last report, though not in all sectors. Manufacturers report that business activity has steadied in recent weeks, after weakening for a number of months, and factories continue to report fairly widespread increases in both input costs and selling prices. Contacts at non-manufacturing firms generally also report some stabilization in business conditions but continue to indicate modest declines in employment. Consumer confidence was reported to be at record lows in July. Still, retail sales remained on or close to plan in July and early August, and were up slightly from a year earlier; moreover, tourism activity in New York City has firmed. Housing markets have been mixed but generally softer, and office markets have slackened. Finally, bankers report weakening demand for both residential and commercial mortgages, widespread declines in refinancing activity, continued tightening in credit standards, and increasing delinquency rates on home mortgages.
Tourism activity in New York City has strengthened in recent weeks. Manhattan's hotel occupancy rate remained near 90 percent in July, which is typically a relatively slow month; room rates were up roughly 10 percent from a year ago, compared with 8 percent in June and 6 percent in May; preliminary indications for August suggest continued strength. An industry contact attributes the strength primarily to large numbers of overseas visitors. Broadway theaters report that business has improved moderately since the last report. Both attendance and revenues are reported to have risen by 1 to 2 percent from a year ago in July and by 3 percent in the first half of August. Average ticket prices have remained essentially flat.
Construction and Real Estate
On a more positive note, a contact monitoring New Jersey's housing industry reports that the resale market has shown signs of stabilizing, though at a weak level, especially for single-family homes. Inventories of unsold existing homes have declined in northern New Jersey, as many discretionary sellers have taken their homes off the market and other sellers have become more negotiable. Both prices and sales volume have leveled off, though they remain lower than a year ago. Concerns over foreclosures are noted, though their absolute number is described as relatively low.
While single-family construction remains at low levels, multi-family activity has remained fairly brisk. In New York City, multi-family building permits ballooned in June, in advance of a change in building codes that took effect July 1. The number of multi-family units authorized increased more than four-fold in June from a year earlier--surging from just under 4,000 to slightly over 17,000. Overall, multi-family permits were 63 percent higher for the first half of 2008 than in the first half of 2007. In urban areas of northern New Jersey proximate to New York City, multi-family re-development is reported to be persistently robust and above comparable 2007 levels.
Commercial real estate markets in the New York City area have shown signs of weakening. In Manhattan, office vacancy rates were little changed from June to July, but were up nearly 2 percentage points from a year earlier; moreover, leasing activity is reported to be running well below comparable 2007 levels. An industry contact maintains that firms with upcoming lease expirations are increasingly inclined to hold off on leasing, reflecting some anticipation that rents could move down from current levels. Asking rents in Manhattan have leveled off, though they are still up by roughly 6 to 8 percent from a year ago; however, a major brokerage firm estimates that actual (effective) rents are lower than a year ago, by roughly 5 percent. Suburban office markets are mixed: Northern New Jersey's market is reported to be increasingly slack, while markets are described as stable in Westchester and Fairfield Counties, and slightly softer in Long Island. Finally, a contact in Manhattan's hospitality industry notes some pickup in interest, among developers, in new hotel projects.
Other Business Activity
In general, non-manufacturing firms in the District generally report that business activity has stabilized, after deteriorating for a number of months. Respondents continue to report flat to declining employment levels at their firms, but expect them to remain steady over the next three to six months. Among these contacts, finding qualified workers remains a major concern. Non-manufacturing firms report continued price pressures, but a somewhat smaller proportion than last month expect to raise their selling prices in the months ahead. A trucking-industry contact reports little change in conditions since the last report--truckers continue to be hampered by high diesel fuel costs and weaker demand.