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Federal Reserve Districts

Second District--New York

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The Second District's economy has strengthened further since the last report. Firms in various industries report widespread increases in input prices and some increases in selling prices, while retail prices are generally reported to be stable. Labor market conditions improved moderately, with increased hiring reported in a number of industries. Retail sales were robust in February and March, with particular strength in auto sales. Consumer confidence has been mixed but generally steady since the last report. Tourism activity rebounded somewhat in March, after weakening modestly in February. Commercial real estate markets have been mixed. Housing markets have been generally stable, with relative strength at the lower end of the market. Finally, bankers report some weakening in household loan demand, and a moderate increase in delinquencies on commercial and industrial loans.

Consumer Spending
Retailers generally report strong results for February and March. One major retail chain notes that sales were ahead of plan in February and March, while another describes sales as on plan. Two major malls in western New York State also characterize sales as steady and strong, continuing to be buoyed by a flow of Canadian shoppers. A number of retail contacts note that, due to the later Easter this year, sales were modestly lower in March than a year earlier, but this effect is expected to be reversed in April. Unseasonably cool weather was not considered a major factor. Two major retail chains note that New York City under-performed the rest of the region in terms of sales growth last month. Inventories are generally reported to be at desired levels, and prices are reported to be stable, though one large retailer notes that it is testing out price increases on certain lines of merchandise.

Auto dealers in upstate New York--metropolitan Rochester and Buffalo--characterize sales of new vehicles as exceptionally strong since the last report. Sales of used cars were also relatively robust, and dealers report that business at service departments remains brisk. Retail credit conditions continued to improve.

Confidence surveys have given mixed results since the last report. Siena College's survey of New York State residents shows consumer confidence among NY State residents leveling off in March, after falling in February. The Conference Board reports that residents of the Middle Atlantic states (NY, NJ, Pa) became considerably less confident about the near-term outlook, in March, but that their assessment of current conditions improved for the 4th straight month.

Tourism activity in New York City picked up again in March, after slowing somewhat in February. Occupancy rates at Manhattan hotels moved up noticeably in March, and the number of occupied rooms was up modestly from a year earlier. Hotel revenues, which had slipped below comparable 2010 levels in February, rebounded in March. Attendance and revenues at Broadway theaters also slipped in February but rebounded above year-earlier levels in March.

Construction and Real Estate
Housing markets across the District have been generally stable since the last report, with the lower end of the market generally performing a bit better than the higher end, and re-sales performing better than new home sales. An authority on New Jersey's housing industry reports that market conditions remain weak: despite some uptick in resale transactions, the spring season, thus far, has been unusually slow. Brokers report that there have been more all-cash deals but also more distress sales. Sales and construction of new homes remain at exceptionally weak levels. A Buffalo-area real estate contact reports that selling prices have increased modestly from a year ago, but that sales activity has been mixed--brisk at the lower end of the market, with some sellers receiving multiple offers, but sluggish at the middle and upper ends of the market.

Activity in New York City's co-op and condo market was generally stable in the first quarter, though the high end of the market has slowed a bit. While total activity was relatively flat versus a year ago, co-op sales rose sharply, while condo sales fell sharply. New condo units represent a smaller proportion of total apartment sales than they have in recent years. Overall, listing inventory is down roughly 5 percent from a year ago. Prices are steady in Manhattan, but continue to drift down in the other boroughs. Manhattan's apartment rental market has picked up somewhat since the last report. Overall, rents were reported to be little changed in March, but rents on smaller (studio) apartments continued to climb and were up more than 10 percent from a year ago. Vacancy rates declined, after edging up in January and February, and the inventory of available units is described as tight.

Office markets have been mixed but generally steady across the District in the first quarter of 2011. The office vacancy rate rose moderately in Manhattan and Long Island (where it reached a multi-year high), but was little changed in Northern NJ. However, asking rents in all these areas moved up, and landlords reportedly scaled back on concessions. In the Buffalo, Rochester and Syracuse areas, vacancy rates edged down, while asking rents were steady to up moderately. In Westchester and Fairfield counties and metropolitan Albany, however, office markets showed further signs of softening, as vacancy rates rose and asking rents continued to decline modestly.

Other Business Activity
Reports from business contacts suggest some broad-based improvement in the labor market. A major New York City employment agency reports a marked pickup in hiring activity in March and describes it as the best month in a number of years. The pickup has been most notable in financial and legal services but also in other areas, such as public relations and real estate. On the supply side, this contact notes that there are fewer candidates looking, and that more employed people are making moves. More generally, firms in both manufacturing and other sectors report a further pickup in both hiring activity and general business conditions in early March, and contacts remain optimistic about the near term outlook. A trucking-industry contact reports that shipping activity has picked up steadily in recent months, but that firms face rising costs from both rising energy prices and more stringent federal regulations. More broadly, firms in various industries report increasingly widespread increases in input prices, and some increase in selling prices.

Financial Developments
Bankers report decreased demand for consumer loans and residential mortgages, increased demand for commercial mortgages and no change in demand for commercial and industrial loans. The decrease was most prevalent for residential mortgages. Bankers indicate steady demand for refinancing. Respondents report no change in credit standards for consumer loans and a tightening of credit standards for the other loan categories. No banker reported an easing of credit standards in any category. Bankers report a decrease in spreads of loan rates over costs of funds for residential mortgages but no change in spreads in the other loan categories. Respondents also note a decrease in the average deposit rate. Bankers report an uptick in delinquency rates for commercial and industrial loans but no change in delinquency rates for the other loan categories.

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Last update: April 13, 2011