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Federal Reserve Districts

Second District--New York

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The Second District's economy appears to have expanded at a modest pace since the previous report. Business contacts in most industries report stable to improving conditions and express widespread optimism about the near-term outlook. Labor market conditions have been mixed but generally steady, on balance: T here has been little or no net hiring in the financial and manufacturing sectors, but a slight pickup in some other sectors. Retail sales are characterized as relatively strong in early 2011, despite inclement weather, and consumer confidence has continued to improve. However, tourism activity has shown signs of slowing by more than the seasonal norm in early 2011. Commercial real estate markets remain fairly slack: The market for office space has been generally stable, while the market for industrial space has softened somewhat. Housing markets have been mostly stable, with scattered signs of improvement. Finally, bankers report strengthening demand for commercial loans and mortgages but weaker demand for home mortgage loans; they also indicate little change in credit standards and steady to lower delinquency rates.

Consumer Spending
Retailers generally report continued strength in sales in early 2011. One major retail chain notes that sales were ahead of plan in January and on plan in February but that New York City underperformed the rest of the region--possibly due, in part, to the heavy snowfall during January, which is estimated to have reduced sales by about 1 percent. Retail contacts in upstate New York also report that sales have been brisk since the beginning of the year, despite a brief lull in early January, with one Buffalo-area contact indicating that sales continue to be buoyed by a steady flow of Canadian shoppers. Inventories are generally reported to be at desired levels, and the pricing environment continues to be characterized as highly promotional.

Auto dealers in upstate New York report that sales of new vehicles continued to trend upwards in early 2011, as lean inventories of used cars have nudged up prices and spurred demand for new models. Dealers in the Rochester and Buffalo areas report that sales of new autos were up 10-20 percent from a year ago in January, with reports of particular strength for domestic brands. Both retail and wholesale credit conditions continued to improve. Service departments also report fairly brisk business, aside from a brief slow patch in early January. One industry contact notes that a recent auto show in western New York State drew strong traffic. Dealers are generally optimistic about the sales outlook for 2011.

Confidence surveys suggest that consumers are in somewhat better spirits. Siena College's survey of New York State residents shows confidence surging to its highest level since 2007, with good gains both upstate and downstate. The Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, Pa) edged down from a 3-year high in January but remains near the upper end of its recent range.

On a less positive note, tourism activity in New York City registered more than a normal seasonal slowdown since the beginning of the year, though the overall level of activity remains fairly high. Occupancy rates at Manhattan hotels in January were somewhat lower than a year earlier, while revenues held steady, reflecting moderate increases in room rates. In the first half of February, however, revenues have been running a bit lower than comparable 2010 levels--if this persists for the full month, it would be the first 12-month decline in revenues since 2009. Broadway theaters report that, after a brisk December and early January, both attendance and total revenues tapered off noticeably around mid January and have been running roughly 10 percent lower than a year earlier over the past few weeks--in part because a number of shows have closed.

Construction and Real Estate
Housing markets across the District have been generally stable since the previous report, with pockets of mild improvement. An authority on New Jersey's housing industry reports that the market has been performing slightly better in early 2011, as the negative aftermath of last year's homebuyer tax credit appears to have worn off. While there is still a sizable supply of existing homes on the market--including a large number of distressed properties--the inventory of available new homes in northern New Jersey is reported to be very low. The residential real estate market in metropolitan Buffalo also appears to have recovered to more normal levels of activity after several months of sluggish performance. There are signs of gradual improvement in Manhattan's apartment rental market: Rents continued to rise at a moderate pace, the inventory of available units is described as tight, and fewer landlords are reported to be offering concessions than last year. Conditions in Manhattan's co-op and condo market, on the other hand, appear to be holding steady: A major appraisal firm reports that prices are holding steady across the board and notes that, while contract activity fell noticeably in January, harsh weather is seen as the culprit, and transaction activity appears to be rebounding in February.

Commercial real estate markets generally remain slack--the market for office space has been mixed but mostly stable in recent weeks, while the industrial market has shown further signs of softening. In New York City, office leasing activity has remained fairly brisk, but this has been more than offset by additional space coming onto the market; as a result, vacancy rates edged up in January. Asking rents on Class A properties did edge up in January but were still down nearly 10 percent from a year earlier. Elsewhere across the region, office vacancy rates edged down in northern New Jersey and across much of upstate New York but rose modestly in Long Island and in Westchester and Fairfield Counties. Industrial markets showed further signs of softening across much of the District. Long Island's industrial vacancy rate rose to its highest level in more than a decade, and rents drifted down. In northern New Jersey, industrial vacancy rates held steady, but rents slipped to multi-year lows. Across upstate New York and in Fairfield County, vacancy rates and rents were little changed.

Other Business Activity
Reports from business contacts generally suggest that firms tend to be adding workers, on net, and plan to increase staffing levels in the months ahead. A major New York City employment agency reports that labor market conditions are improving gradually and that hiring activity has picked up somewhat since the previous report. Financial sector hiring is reported to be up marginally--largely in the areas of trusts and estates--and legal hiring has picked up a bit from very low levels. A securities industry contact reports that layoffs continue but at a subdued pace; still, there is said to be little or no net hiring in this industry. Cash bonuses are reported to be down somewhat from a year ago, though overall compensation is seen as little changed. Most manufacturing contacts, however, indicate that they are currently keeping employment levels steady, though some net hiring is anticipated in the months ahead.

Financial Developments
Bankers report a decrease in the demand for residential mortgages, but increased demand for commercial and industrial loans and especially commercial mortgages; demand for consumer loans is reported to be little changed. Bankers indicate no change in the demand for refinancing. Respondents note some tightening of credit standards for commercial and industrial loans, on net, but no change in standards for the other loan categories. Bankers report no change in spreads of loan rates over costs of funds across all loan categories; spreads had been narrowing towards the end of 2010, based on the prior few surveys. Respondents indicate that average deposit rates have been steady to declining. Finally, bankers report a decrease in delinquency rates for commercial mortgages but no change in delinquencies for the other loan categories.

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Last update: March 2, 2011