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Federal Reserve Districts


Second District--New York

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Full report

The Second District's economy has continued to expand since the last report, though at a somewhat diminished pace. Labor market conditions have continued to improve modestly. Retail sales have held steady at favorable levels since the last report. Consumer confidence reports have been mixed. Tourism activity picked up in April but tapered off a bit in early May. Commercial real estate markets have been relatively stable. The residential purchase market has been steady to somewhat softer, but the rental market has continued to improve; new residential construction remains low. Finally, bankers report further weakening in consumer loan demand, tighter credit standards on the commercial sector, and higher delinquency rates on consumer loans but somewhat lower delinquencies in other loan categories.

Consumer Spending
Retail sales have held steady since the last report and are running modestly above comparable 2010 levels. Sales were somewhat ahead of plan, despite unseasonably cool and wet weather, which likely had a small negative effect on spending. Two contacts--a major retail chain and a large mall in upstate New York--report that sales weakened in the first half of May, after a robust April. Inventories are reported to be in good shape. Selling prices have been steady overall, though some contacts describe the pricing environment as more promotional than a year ago. One major retail chain indicates that prices have been stable during the first half of the year; yet moderate price increases are planned for the second half of 2011--largely for cotton-based merchandise.

Auto dealers in upstate New York report that sales of new vehicles have cooled somewhat since the first quarter but remain at fairly high levels, up moderately from a year earlier. Some of the slowing in sales is attributed to supply disruptions related to the tsunami in Japan. One local auto dealers' association reports an exceptionally low inventory of used vehicles, which has hampered sales volume and pushed prices up. Retail credit conditions continued to improve, while wholesale credit conditions were mixed.

Consumer confidence surveys have given mixed results. Siena College reports that consumer confidence among New York State residents fell to its lowest level of the year in April--largely attributed to surging food and energy prices. In contrast, the Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, Pa) surged in April, reaching its highest level since late 2007; the rise was largely driven by improved perceptions of job availability.

Tourism activity in New York City strengthened in April, though there were signs of some pullback in May. Occupancy rates at Manhattan hotels moved up by more than the seasonal norm in April, and room rates accelerated, running 5-10 percent higher than a year earlier. Partly due to a spate of new show openings, Broadway theaters report that both attendance and total revenues surged in April and were running 10 to 15 percent ahead of a year earlier, after a sluggish March,. Attendance and revenues slipped in May, although both were still up from a year earlier.

Construction and Real Estate
Housing markets across the District have been mixed since the last report: the home purchase market has been steady to somewhat softer, but the rental market has continued to strengthen. Buffalo-area Realtors report steady market conditions, with sales activity and pending sales down from a year earlier but prices up roughly 5 percent. More broadly, home prices have been running moderately ahead of a year earlier across most of upstate New York, despite pockets of weakness in metropolitan Rochester and Albany. However, prices in the New York City metropolitan area, including northern New Jersey and southwestern Connecticut, have drifted down slightly and are modestly lower than a year ago.

An authority on New Jersey's housing industry reports that sales of existing homes have slowed since the last report, and new home sales remained depressed. A sizable inventory of foreclosed properties--roughly equal to nine months of sales--is reported to be putting downward pressure on home prices overall. However, low volume and a sizable incidence of distressed sales make it difficult to gauge price trends in northern New Jersey. Activity in New York City's co-op and condo market was mixed but generally stable since the last report, with Manhattan, Brooklyn and Bronx holding steady--in terms of both prices and sales activity. Some softening was evident in Queens and Staten Island. Long Island's market has been stable, though conditions have weakened in the Hamptons, where sales activity is off, especially at the high end.

In contrast with the sluggish purchase market, rental markets have performed fairly well, particularly in New York City: Manhattan rents are reported to be up roughly 6 percent from a year ago. Moreover, when the widespread withdrawal of landlord concessions is factored in, the rise in effective rents has been steeper. Rental vacancy rates have drifted down. Contacts in both New York City and northern New Jersey see relatively little new residential construction, and note that most new and proposed development is for rental housing.

Commercial real estate markets have been largely steady since the last report. Office markets showed signs of modest improvement in New York City, Long Island, and most of upstate New York, as vacancy rates edged down while asking rents were steady to up slightly. However, market conditions weakened somewhat in northern New Jersey, Westchester and Fairfield Counties, and in the Albany area. Industrial vacancy rates rose in Long Island but were little changed in other markets. In much of the District, asking rents on industrial properties, which had been declining through the end of 2010, have leveled off or moved up modestly in recent months.

Other Business Activity
Reports from business contacts give a mixed picture of the labor market. A major New York City employment agency reports that, after a robust March, hiring activity weakened noticeably in April and early May, though it picked up again in the third week of May. Still, the supply of available workers has dwindled further, and more workers are testing the water and leaving current jobs for new ones. Starting salaries have remained steady and below pre-recession levels. Law firms, in particular, have started hiring more, while financial sector hiring has been stable. A contact in the securities industry reports that the jobs being added there tend to be mostly in support areas, such as legal and compliance, as opposed to revenue-generating areas.

Non-manufacturing firms broadly indicate that both business and hiring activity have been steady to modestly higher since the last report. Contacts have become slightly less optimistic about the near term outlook and have scaled back hiring plans somewhat. Non-manufacturing firms report that cost pressures remain widespread but have not broadened since the last report. Manufacturing firms in the District report that business activity was generally steady in April and early May. Contacts report that they are adding workers, on net, and plan to continue to do so in the months ahead. Manufacturers also note increasingly widespread price pressures, and roughly two in five say they plan to hike their selling prices in the months ahead. A trucking-industry contact reports that shipping activity has shown no sign of slipping, despite the recent surge in diesel prices.

Financial Developments
Reports on loan demand were mixed: small to medium sized banks indicate a decrease in demand for consumer loans, an increase in demand for commercial mortgages, and no change in the demand for residential mortgages and commercial and industrial loans. Respondents indicate no change in credit standards for the household sector but a tightening of standards for commercial loans and especially commercial mortgages. Bankers report a decrease in spreads of loan rates over costs of funds for all loan categories--particularly on residential mortgages. There were also fairly widespread decreases in deposit rates. Finally, delinquency rates rose for consumer loans but decreased for commercial mortgages and, to a lesser extent, on commercial and industrial loans. Delinquency rates on residential mortgages were unchanged.

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Last update: June 8, 2011