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Federal Reserve Districts

Second District--New York

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Full report

On balance, the Second District's economy showed signs of decelerating since the last report. Input prices have continued to rise moderately, while consumer prices appear to be steady to down slightly. General merchandise retailers report that sales have slowed since the last report, though auto dealers categorize sales as fairly good. Commercial real estate markets have generally been steady to softer since the last report. Residential real estate sales markets weakened to very low levels, though New York City's rental market continued to improve modestly. Manufacturing-sector contacts report some further deceleration in business activity. Tourism activity in New York City has been steady at a strong level since the last report, buoyed by rising business travel. Overall, the labor market, though still slack, has shown further modest signs of improvement. Finally, bankers report steady to weaker loan demand, steady to higher delinquency rates and some tightening in credit standards, but also some narrowing in loan spreads.

Consumer Spending
Non-auto retailers report that sales have slowed across the District since the last report, with comparable-store sales running just 2-3 percent ahead of a year earlier, on average, in July and up just 1-2 percent in the first few weeks of August. The slowing has been particularly pronounced at New York City stores. Two major shopping malls in western New York State also report that sales weakened in July through early August, and they report substantial discounting--especially at clothing retailers. Despite this recent slowing, most contacts continue to report that inventories generally remain at favorable levels. Contacts report steady to modestly declining selling prices and acquisition costs. One contact notes that steep discounting has been necessary to move merchandise.

Auto dealers in the Rochester area report that sales of new autos were down roughly 10 percent from a year ago in July and down 15 to 20 percent in the first half of August, while Buffalo-area dealers report a 5 percent year-over-year increase in July and project a moderate decline in August. Still, contacts in both areas describe the current sales pace as fairly good, with the 12-month comparisons depressed by last summer's "Cash for clunkers" program. Dealers report that both retail and floor-plan credit conditions have continued to improve.

Tourism activity in New York City has been steady at a strong level since the last report. Manhattan hotels report that occupancy rates remained close to 90 percent in July and August, even as the number of hotel rooms has risen by more than 5 percent over the past year. Moreover, room rates continued to run 10-15 percent ahead of this time last year. Business travel has reportedly increased in recent months, accounting for a growing share of revenues. Broadway theaters report that attendance picked up a bit in the latter part of July and remained brisk in August--up roughly 5 percent from a year earlier, though the average ticket price was down 4 percent in August from comparable 2009 levels. Overall revenues were up moderately from a year earlier in July but flat in the first three weeks of August.

Construction and Real Estate
Housing markets have shown further signs of softening since the last report, with much of the weakness again attributed to the expiration of the home-buyer tax credit. Buffalo-area Realtors say the market has cooled dramatically and describe home sales activity as "totally dead" in July and early August; historically low mortgage rates are said to be having little if any positive effect. They also report that pending sales activity has fallen sharply and that the number of active listings has increased. One contact in western New York State anticipates consolidation in the real estate industry, as some agents and brokers are likely to merge or exit the market. Across New York State more broadly, the number of sales transactions fell by roughly half from June to July--a far steeper drop than the seasonal norm--and was down 35 percent from a year earlier. The median reported sales price rose in July and was up from a year earlier, though one industry contact notes that this may reflect a shift in the mix, as the expiration of the tax credit predominantly affected the lower end of the market. An authority on New Jersey's housing industry reports that market conditions appear to be weak but concedes that underlying fundamentals are difficult to gauge during this perennially slow season. With builders holding off on new construction, inventories have gotten quite low, though prices still seem to be drifting lower. Most of the multi-family development along New Jersey's "Gold Coast" (across from Manhattan) has now shifted to rentals.

In New York City, conditions were more mixed. Activity in the city's co-op and condo market has fallen off by somewhat more than the seasonal norm in July and August, following a brisk second quarter; activity has dropped off particularly sharply on Long Island and, in general, at the lower end of the market. A leading appraisal firm reports that prices remain essentially flat in Manhattan and across New York City generally. The appraisal business has reportedly remained strong. Manhattan's rental market, though still somewhat slack, has continued to recover: rental activity has remained stable at a moderate level, while effective rents have rebounded--contract rents have risen only modestly, but landlords are offer fewer concessions (i.e. fewer months free rent). A considerable volume of new development will be coming onto the market, probably largely as rentals, in the months ahead.

Office markets across the District were generally steady to weaker since the last report. Vacancy rates were steady throughout most of the District, though they increased modestly in Manhattan and the Albany area. Asking rents were also little changed overall; they edged up in the Long Island and Syracuse areas but edged down in the northern New Jersey and Albany markets. Asking rents are still down sharply from a year ago in Manhattan and down moderately in Long Island and northern New Jersey; however, rents are up from a year ago in the Buffalo, Syracuse and Albany areas. Industrial markets were also steady to weaker across the District since the last report. Industrial vacancy rates rose modestly across the New York City metro area and held steady in the Buffalo and Rochester areas. Asking rents were generally down 3-4 percent from a year ago.

Other Business Activity
Manufacturing firms in the District report some leveling off in conditions in July and August, after reporting fairly widespread improvement during the first half of the year. However, a sizable number of manufacturing contacts indicate that they are increasing employment. Non-manufacturing firms report ongoing improvement in general business conditions and continue to report moderate increases in employment; they remain fairly optimistic about the near term outlook. Both manufacturers and other firms report ongoing increases in prices paid but only modest changes in selling prices. Separately, a trade association survey of New York State firms, conducted in July, indicates fairly widespread optimism about revenue growth and notes that far more respondents plan to increase than decrease head-counts in the next year.

A major NYC employment agency, specializing in office jobs, reports that, while the job market is difficult to gauge during the slow summer season, market conditions appear to be improving gradually and conditions are not as dire as last summer. The pool of available candidates is not as large as it was last summer; however, some people who had given up looking are starting to come back.

Financial Developments
Contacts at small to medium sized banks in the District report decreased demand for consumer loans and commercial mortgages, and steady demand for commercial and industrial loans. Demand for residential mortgages picked up, but this may largely reflect refinancing of existing loans (which rose sharply). Respondents indicate a tightening of credit standards for all categories--particularly in the commercial mortgage category. For the first time in well over a year, bankers report a decrease in spreads of loan rates over costs of funds--primarily for residential mortgages. Bankers report little or no change in spreads for other loan categories. Finally, bankers' responses point to increased delinquency rates for residential mortgages, commercial mortgages and commercial and industrial loans but little change in delinquencies for consumer loans.

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Last update: September 8, 2010