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Federal Reserve Districts

Second District--New York

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The Second District's economy has shown further signs of improvement since the last report, with indications of a modest pickup in the labor market; prices remain relatively stable. Business contacts, in general, report some expansion in activity, with manufacturing contacts also indicating that they are adding workers. Retailers mostly report that holiday-season sales were roughly on par with 2008 levels but ahead of plan; inventories were characterized as much leaner going into the season than last year, leading to less discounting than in 2008 in most cases. Auto dealers report mixed sales results for November and December, but they express a general sense of optimism about the outlook for 2010. Tourism activity in New York City showed some signs of tapering off towards the end of the year. Commercial real estate markets were steady to softer in the fourth quarter, with the sales/investment market remaining moribund. Residential real estate markets showed signs of stabilizing. Finally, bankers report steady demand for home mortgage loans but further weakening in loan demand in other categories; they also note ongoing increases in delinquency rates in all categories.

Consumer Spending
Retailers generally report that holiday-season sales were little changed from 2008 levels but moderately ahead of plan, as many stores carried significantly lower inventories than last year. Two major chains indicate that their sales were modestly above plan in December, led by sales of winter apparel; one contact noted that cosmetics and fragrances sold particularly well, while another noted that fine jewelry was one of the weaker categories. Contacts at these chains report less discounting and fewer clearance sales--both before and after Christmas--than in 2008. Separately, a survey of small retailers across New York State also indicates that sales were generally on or a bit ahead of plan in December, led by sales of cold-weather apparel; most of these retailers noted that they held lean inventories. Contacts at two major malls in upstate New York describe sales as relatively strong and ahead of plan--buoyed, in part, by brisk demand from Canadian shoppers--though there was a strong preference for lower-priced merchandise, and discounting was reported to be steep. At these malls, stores that were reluctant to discount generally showed poor results; electronics retailers reportedly fared particularly well.

Auto dealers indicate mixed results: contacts in the Rochester area report that sales continued to improve in November and early December and were running ahead of comparable 2008 levels. In contrast, dealers in the Buffalo area describe sales as sluggish, continuing to run roughly 20 percent lower than a year earlier. Still auto dealers across western New York say they are optimistic about sales prospects for 2010; they maintain that credit availability for consumers has improved, but that the dealers themselves continue to face tight "floor-plan" credit--a revolving credit line that a dealership uses to purchase vehicles.

Tourism activity in New York City has been steady to weaker since the last report. Manhattan hotels report that occupancy rates were steady at fairly high levels in November and the first half of December and remained slightly above comparable 2008 levels; room rates were still down roughly 15 percent from a year earlier but appear to have leveled off since mid-year, when year-over-year drops hovered around 30 percent. Broadway theaters report that attendance was notably sluggish during this past holiday season: the seasonal pickup was much weaker than usual, and December attendance fell below year-earlier levels, though revenues were up modestly, reflecting higher ticket prices in 2009 than in 2008. Finally, the Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, Pa), declined modestly in December.

Construction and Real Estate
Commercial real estate markets in the District were mixed but, on balance, softer since the last report. Manhattan's office vacancy rate leveled off in the final quarter of 2009, but asking rents on Class A properties reportedly tumbled by 15 percent and were down 26 percent from a year earlier. Office markets surrounding New York City were mixed: asking rents declined moderately, while vacancy rates were little changed overall--up slightly in Westchester and Fairfield Counties but down slightly in northern New Jersey and Long Island. Office markets in upstate New York were generally stable, on balance, with faint signs of improvement in the Buffalo and Albany areas but modest softening in metropolitan Rochester. Sales transactions of office properties were exceptionally low throughout the District in the fourth quarter, and, in most cases, down from both the third quarter and a year earlier.

Housing markets have been mixed but, on balance, steady since the last report. Home sales reportedly slowed considerably in the Buffalo area in November and early December, though prices remained higher than a year ago; this slowing is partly attributed to the expiration of the [now extended] homebuyer tax credit. Contacts in northern New Jersey report that resale activity and prices have picked up modestly, though both remain at fairly depressed levels; the uptick in prices may be partly due to fewer distress sales. New home construction in northern New Jersey remains stable at an exceptionally low level, with a modest pickup in multi-family development offsetting further weakening in the single-family sector. New York City's housing market has shown some signs of stabilizing. Co-op and condo prices continued to decline in the fourth quarter but at a more moderate pace than earlier in the year--in both Manhattan and the outer boroughs. Moreover, the number of transactions picked up, both from the third quarter and from a year earlier, and the inventory of unsold units, though still fairly high, fell 25 percent from late-2008 levels. Manhattan's apartment rental market also showed signs of stabilizing in December, as both rents and inventories were virtually unchanged from November. Still, rents remain well below year-earlier levels, especially when landlord concessions (fee waivers and free rent for 1-2 months) are factored in, though some of the more aggressive incentives are reportedly being scaled back.

Other Business Activity
A major New York City employment agency, specializing in office jobs, reports that hiring activity has picked up a bit--primarily from the city's financial industry--during what is usually a slow season. More generally, contacts at manufacturing firms report some ramping up in employment, whereas contacts in other sectors continue to report steady to declining employment at their firms; however, both manufacturers and other firms plan to increase employment levels in the first half of 2010. Retailers generally report that they tended to boost holiday-season staffing levels by giving existing workers longer shifts to a greater extent than last year, as opposed to hiring and training temporary seasonal workers; this also suggests somewhat fewer impending post-holiday layoffs than a year ago.

Looking at overall business conditions, both manufacturing and non-manufacturing contacts report a pickup in activity; manufacturers remain broadly optimistic, while non-manufacturers now express a less negative view of the current business climate and are considerably more optimistic about the general outlook than they have been in well over a year. Contacts report little change in their selling prices, on balance, though a growing proportion indicate some pickup in price pressures and expect input prices to rise in the months ahead.

Financial Developments
Second District banks report that demand continued to decrease for all types of loans except residential mortgages, where demand is reported to be steady. Bankers also report decreased demand for refinancing. For all loan categories, respondents continue to indicate tightening of credit standards. Contacts note an increase in the spreads of loan rates over costs of funds for all loan categories except residential mortgages, where they report no change. Respondents also indicate further decreases in average deposit rates. Finally, respondents report ongoing increases in delinquency rates across all loan categories.

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Last update: January 13, 2010