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Federal Reserve Districts

Second District--New York

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The Second District's economy continued to expand at a modest pace since the last report. Input prices have risen somewhat, while consumer prices remain steady. General merchandise retailers report that sales were mixed but, on balance, steady and close to plan; auto dealers in upstate New York report that sales held up fairly well in August and September and that credit conditions continued to improve. Commercial real estate markets have generally been steady since the last report. Residential real estate sales markets were generally stable across the District, while New York City's rental market showed continued modest improvement. Manufacturing-sector contacts report some pickup in business during September and early October, after a pause in August. Tourism activity in New York City, though still fairly brisk, has shown some signs of cooling since the last report. The labor market has been mixed recently: manufacturers continue to add jobs and firms in a wide variety of industries plan to increase employment in the months ahead; however, contacts in New York City report that the financial industry continues to shed jobs and that hiring for office and administrative jobs generally remains sluggish. Finally, bankers report little change in loan demand, lower delinquency rates on consumer loans, and ongoing tightening in credit standards.

Consumer Spending
General merchandise retailers report that sales have been mixed since the last report, with same store sales running roughly on par with a year ago and on or close to plan in September. Stores in Manhattan fared somewhat better than in the rest of the region, evidently helped by brisk tourism. One major retail chain notes that sales of seasonal apparel were sluggish due to unseasonably mild weather but that sales in most other categories were fairly good; this contact expects holiday season sales to be up roughly 3 percent from 2009 on a same-store basis. Another contact at a major mall in upstate New York indicates a sharp uptick in sales toward the end of September. Some New York State retailers express concern about the recent reinstatement of the state sales tax on clothing under $110, though it is too early to gauge any effect on sales. Inventories are generally reported to be at favorable levels, while prices remain steady; merchandise acquisition costs have also been steady. A few major retail contacts indicate that they plan to hire more holiday-season staff than in 2009. Auto dealers in upstate New York report that sales of new vehicles held up fairly well in August and September, though the cash-for-clunkers program last summer adversely affected year-ago comparisons. Sales and prices of used cars have reportedly been buoyed somewhat by strong demand and lean inventories of new vehicles. Auto dealers report continued improvement in credit conditions.

Tourism activity in New York City, though still fairly brisk, has shown some signs of cooling since the last report. Manhattan hotels report that occupancy rates remained close to 90 percent in September, while room rates continued to run 10-15 percent ahead of a year earlier. However, there are scattered reports of weaker than expected advance bookings for October, which may reflect some softening in business travel. Broadway theaters report that revenue weakened noticeably in September and was down roughly 10 percent from a year earlier; this reflects some recent tapering off in both attendance and ticket prices, the latter of which was down roughly 6 percent from a year earlier.

Separately, consumer confidence remained steady in September, though at depressed levels. The Conference Board reports that confidence among residents of the Middle Atlantic region (NY, NJ, PA) edged up in September, after falling to a more than one-year low in August; Siena College's September survey of New York State residents shows confidence holding steady in both upstate and downstate--also at weak levels.

Construction and Real Estate
Housing markets have been mixed but generally stable since the last report. Real estate contacts in both northern New Jersey and western New York State report that sales activity has remained exceptionally weak as the usual seasonal pickup in September has not occurred. The ongoing weakness was partly attributed to the expiration of the home-buyers tax credit, which is believed to have pulled sales forward from the second half of 2010. Prices are characterized as relatively stable in upstate New York and drifting down in northern New Jersey, where one industry contact notes a sizable inventory of distressed properties on the market. Manhattan's co-op and condo market was stable in the third quarter: sales activity was steady, after accounting for a normal seasonal dip, and prices were steady to down slightly overall. Manhattan's apartment rental market improved modestly: effective rents are estimated to be rising moderately, as landlords pull back on concessions. New leasing activity picked up noticeably in the quarter--largely attributed to renters moving in response to the end of concessions on lease renewals.

Office markets across the District softened modestly since the last report. Asking rents continued to drift down in Manhattan and northern New Jersey but were mostly steady in other parts of the region. In Manhattan, office vacancy rates retreated in August and September, after rising in July. In most of the District, though, vacancy rates have edged up since the last report.

Other Business Activity
A major New York City employment agency, specializing in office and administrative jobs, reports that hiring activity was disappointingly sluggish in September--particularly from financial firms. Similarly, a contact in the financial industry notes that employment continues to drift down, as the pace of layoffs appears to have picked up a bit lately; some financial firms are reported to be in the market for lawyers and accountants but are not hiring much in other areas. Moreover, recent weakening in revenues is said to be constraining compensation at these firms, and year-end bonuses (typically paid out in January) are projected to be lower than this past year.

Manufacturing firms in the District report a pickup in activity in September, following a pause in July and August, and a growing proportion of manufacturing contacts indicate that they are increasing employment and plan to add more workers in the months ahead. Non-manufacturing contacts also report some pickup in business activity and have grown substantially more optimistic about the general business outlook. Both manufacturers and other firms report a moderate increase in input price pressures but only modest changes in selling prices.

Financial Developments
Small to medium-sized banks report that loan demand was generally steady overall: respondents indicate a moderate decrease in demand for consumer loans and commercial and industrial loans, but a moderate increase in demand for residential mortgages; demand for commercial mortgages was little changed. Bankers also note a continued increase in refinancing activity. Credit standards are reported to have tightened for commercial and industrial loans and mortgages, with no reports of easing standards in these categories; however, banks report little or no change in credit standards for consumer loans and residential mortgages. Bankers' responses suggest some decrease in spreads of loan rates over costs of funds for residential mortgages but no change in spreads in the other loan categories. Respondents indicate ongoing widespread decreases in the average deposit rate. Finally, bankers report a decrease in delinquency rates for consumer loans but little or no change for other loan categories. Separately, contacts at credit unions indicate that credit conditions and business activity generally remain steady.

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Last update: October 20, 2010