June 9, 2010
Federal Reserve Districts
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The Second District's economy has strengthened further since the last report, with scattered signs of improvement in the job market; manufacturers and other firms continue to face upward cost pressures, but prices at the consumer level remain relatively stable. Manufacturing-sector contacts continue to report improvement in business activity and increasingly widespread plans to increase capital spending. Auto dealers report strong sales for April but mixed results for May. Similarly, non-auto retailers generally report that sales were robust and ahead of plan since the last report, though one large chain reports that sales slowed in May. Tourism activity in New York City has strengthened further since the last report. Commercial real estate markets have generally been steady since the last report. Residential real estate markets have been steady to somewhat firmer since the last report, especially at the lower end of the market. Finally, bankers report weaker demand for consumer loans but little change in other categories; they also note some tightening in credit standards but little change in credit spreads or delinquency rates.
Vehicle sales have reportedly slowed a bit in recent weeks. Rochester-areas auto dealers report that sales were relatively strong in April, rising by as much as 25 percent from a year ago (though spring 2009 makes a particularly low base for comparison); however, results for May have been more mixed, with some softening in demand for domestic makes. Dealers in the Buffalo area report that sales remained strong in April, rising nearly 10 percent from a year earlier, but that they cooled in May and were modestly lower than in May 2009. Auto dealers in both areas report recent improvement in both retail and wholesale credit conditions.
Tourism activity in New York City has shown further signs of strengthening in April and May. Manhattan hotels report a marked pickup in revenue in April and the first three weeks of May, reflecting both higher room rates and increased occupancy. Total revenues rose by more than the seasonal norm from the first quarter and were up roughly 10 percent from a year earlier. Similarly, Broadway theaters report that business has picked up noticeably in recent weeks, after slowing a bit in mid-April. Revenues for the first half of May were running 16 percent ahead of a year ago, partly reflecting increased attendance, but primarily due to higher ticket prices.
Construction and Real Estate
Activity in Manhattan's co-op and condo market has leveled off, following a modest pickup in the first quarter. The pace of new contract signings has retreated a bit in recent weeks, while prices have held steady at about 20-30 percent below their peak. There remains a large supply of units on the markets, though one contact notes that the inventory of competitively priced units is fairly lean. While the home-buyer tax credit has had little impact on Manhattan's high-priced market, it has reportedly had a positive effect elsewhere in New York City, where prices are considerably more moderate. Manhattan's apartment rental market has strengthened since the last report. Rents have recovered modestly, and landlords are offering less generous concessions than last year or even a few months ago. The inventory of available rental units has stabilized.
Commercial real estate markets in and around New York City have been relatively steady since the last report. Leasing activity, which was very depressed throughout most of 2009, has picked up noticeably since the beginning of this year and is now back up to "normal" levels. Much of the recent pickup has come from legal firms and, to a lesser extent, from business services, media, and government agencies; in contrast, there has been a dearth of new leasing by financial firms. Still, vacancy rates continue to edge up, as businesses tend to be taking less space than they had at prior locations. Asking rents continue to drift down but appear to be bottoming; net effective rents have been stable since last summer, as landlords have gradually scaled back on concessions.
Other Business Activity
A contact in the trucking industry reports that business has continued to improve moderately since the last report and that truckers are seeing some relief from lower diesel prices. There are scattered but increasing reports of driver turnover--drivers leaving for more lucrative jobs. A securities-industry contact notes that business conditions have been good, with both underwriting and investment banking activity strengthening, and contends that major layoffs are now behind us; however, firms are reportedly putting off hiring and investment, due to uncertainty about regulatory reform as well as concern about global financial conditions, particularly in Europe. Recent hiring by financial firms has largely been in the area of compliance.