November 3, 1999
Federal Reserve Districts
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Economic growth in the District has shown signs of slowing since the last report, with some softening in consumer demand accompanied by ongoing labor shortages. Consumer price inflation remains subdued, despite indications of increased cost pressures--prices of manufacturing inputs continue to rise, and a large employment agency reports an acceleration in wages. Retailers indicate that sales were on the weak side in September and the first three weeks of October. Homebuilders and realtors in the New York City area report that markets are still strong but have cooled a bit since the summer. New York City area office markets remain tight, while rents have risen modestly.
Regional purchasing managers report that manufacturing activity was mixed to weaker in September while cost pressures intensified further. Banks report a decline in loan demand and a noticeable tightening in credit standards, accompanied by continued improvement in delinquency rates.
Selling prices and merchandise costs are reported to be little changed, on balance, in recent weeks. However, a number of retailers say that the pricing environment for the upcoming holiday season is shaping up to be more competitive than last year; one retailer indicates that some competitors have already begun discounting merchandise. Wage pressures remain steady thus far, though a number of contacts are concerned that they may intensify as seasonal hiring picks up in November.
Construction and Real Estate
New Jersey homebuilders report continued strong demand for both new and existing homes. There continues to be an unusually long delivery time for new homes, reflecting shortages of both materials and workers. An industry expert indicates that homebuyer traffic was affected by severe weather in September, but otherwise has remained brisk; however, he notes that there now seems to be less of a sense of urgency to buy than a few months ago.
Office markets across most of the New York City area remain tight as a drum. Office vacancy rates across Manhattan continue to hover at cyclical lows. Office rents in Midtown and Downtown have risen only modestly this year, but rents in the Midtown South area (including Silicon Alley) continue to rise at a double-digit rate. Office vacancy rates in Westchester and Northern New Jersey edged down in the third quarter, while Long Island's vacancy rate fell sharply, to a cyclical low of 7.1 percent.
Other Business Activity
There is some anecdotal evidence that the slowing in regional payroll employment growth in the third quarter may reflect labor shortages. A large employment agency reports that demand for temporary workers remains strong but that "effectively, there are no more temps." The contact describes the labor market as very tight and notes that the current lack of contingent workers is now "driving up salaries and fees in full-time job placement." There has been a pause in demand for computer specialists, as Y2K needs are slackening, but strong demand is expected to resume next year. Separately, a recent survey of the securities industry indicates that technology spending is expected to increase by 7 percent annually over the next three years--largely to support on-line investing.
On the supply side, bankers report tighter credit standards for all categories of loans--particularly on nonresidential mortgages and commercial and industrial loans. A large majority of bankers raised rates on both loans and deposits since the last report. Finally, delinquency rates continued to drop in all loan sectors, led by residential and nonresidential mortgages.