April 16, 2008 Federal Reserve Districts Second District--New York

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The Second District's economy has shown further signs of weakening since the last report. Manufacturers report that business activity tailed off substantially in February and early March and has been flat since. Import volume at the Port of New York is also reported to have slowed noticeably. Contacts outside the manufacturing sector generally indicate continued softening in business activity and little change in employment levels. More broadly, a major employment agency indicates some slowing in hiring activity since the last report. Retailers indicate a moderate pickup in business in March, after a disappointing February; sales are said to be on or close to plan. Tourism activity in New York City has held steady since the last report. Housing markets are reported to have softened further, including Manhattan's previously resilient co-op and condo market. Office markets across the New York City area showed some signs of slackening in the first quarter, with vacancy rates edging up and asking rents decelerating. Finally, bankers report further weakening in loan demand, more pronounced tightening in credit standards, and widespread increases in delinquency rates across the board. Consumer Spending Retailers report that sales picked up somewhat in March and were back on or close to plan, following a disappointingly weak February. As in recent months, sales were relatively strong in New York City. Overall, sales are reported to be little changed from a year earlier, and inventories are said to be at or near desired levels. Retail selling prices are reported to have remained steady since the last report, but one contact foresees some significant increases in acquisition costs on the horizon. Consumer surveys point to further erosion in confidence: Based on the Conference Board's survey of Middle Atlantic residents, consumer confidence declined for the sixth consecutive month in March, falling to its lowest level in nearly 12 years. Similarly, Siena College's survey of New York State residents shows sharp declines in consumer confidence across all metro areas in the first quarter; over the past year, the steepest declines, by far, have been in the New York City and Albany metro areas. Tourism activity in New York City has been steady since the last report, with the level of activity still fairly high. While Manhattan's hotel occupancy rate was up 3 percentage points from a year earlier in February, room rates edged down in the month to a level 9 percent higher than a year earlier, compared with double-digit percentage gains throughout 2007. Broadway theaters report that attendance was up 3 percent from a year earlier in March--about the same as in February--but that revenues were up less than 2 percent, reflecting a slight decline in the average effective ticket price. Construction and Real Estate Housing markets in the District have continued to cool off. Manhattan's co-op and condo market showed clear signs of cooling in the first quarter, according to a major appraisal firm: unit sales fell 30 to 40 percent from a year earlier, while the number of listings rose, although inventories remained fairly tight at the high end of the market. The average reported transaction price did increase, but this was attributed to relatively brisk sales at the high end of the market (largely newly-built luxury units). Noticeable declines in sales are also reported in Brooklyn, Queens and Long Island. Northern New Jersey's housing market is reported to have stabilized, but at low levels. An industry contact notes that buyer traffic is light, and that many prospective buyers are hesitant, waiting for prices to decline further. The number of listings has increased, and, in contrast with Manhattan, the high end of the market has been accumulating inventory at a more rapid pace than the rest of the market. The "active-adult" segment is noted to be particularly slack, reflecting above-average inventories and particularly weak demand. Prices for new homes are estimated to be down as much as 20 percent from a year ago, while prices for existing homes are seen to be off 15 percent from their peak levels. Finally, New York State Realtors indicate further marked declines in the single-family market in February: the median selling price is reported to be down nearly 12 percent from a year earlier, while unit sales are reported to be down 19 percent, with some of the sharpest drops in the New York metro area. Commercial real estate markets have also slackened. Vacancy rates rose moderately throughout the New York City metropolitan area, led by somewhat large increases in Central New Jersey and Westchester County. Asking rents on Class A properties rose moderately in Manhattan and Fairfield County, though at a slower pace than in 2007; rents were flat to down slightly in Long Island, Westchester and northern, as well as central, New Jersey. Other Business Activity A major New York City employment agency, specializing in office jobs, reports that hiring activity weakened in March and improved only modestly in early April. On the supply side, this contact reports seeing somewhat more job candidates recently let go from the financial sector than in February, but indicates that there are still relatively few such applicants. Large Wall Street firms are reported to be hiring only sporadically, and legal firms have become more patient in hiring; some hedge funds continue to hire, while others have pulled back. New York State manufacturers report that business activity weakened noticeably in February and early March, before leveling off in early April. Contacts also report further acceleration in prices paid but only modest increases in selling prices. Overall, manufacturers anticipate little change in their employment levels over the next year. A major shipping terminal at the Port of New York reports that import volume has slowed noticeably in early 2008: after 6-7 percent gains in 2007, the volume of incoming containers is running flat in early 2008, compared with a year earlier. In general, non-manufacturing firms in the District report continued weakening in general business activity and little change in employment levels; these firms also continue to rein in capital spending plans somewhat. Financial Developments Bankers report weakened demand across all loan categories except residential mortgages, where demand remained unchanged. The decrease in demand was most widespread in the consumer loan category, where close to half of the bankers surveyed report lower demand, while just one in six report higher demand. Bankers do report an increase in refinancing activity, on net. Respondents indicate widespread tightening of credit standards across all categories. No bankers reported eased standards for any type of loan. Reports on the spreads of loan rates over cost of funds were split across the consumer and commercial loan groups. Bankers reported narrowing spreads for consumer loans and residential mortgages. For commercial mortgages and commercial & industrial loans, bankers indicated no change in spreads. Respondents indicate increased delinquency rates in all loan categories; overall, reported increases are now more widespread than at any time in at least 13 years of this survey. Return to top Boston Philadelphia