December 8, 1999 Federal Reserve Districts Second District - New York

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The Second District's economy continues to expand at a fairly brisk pace. Price pressures persist in manufacturing and real estate, but there are still no signs of a general acceleration in consumer price inflation. Most retailers report that November sales were well below plan for the first three weeks of November but well above plan after Thanksgiving. Pricing is said to be "very promotional" but not much different than last year; similarly, with labor shortages reported to be only slightly more severe than during last year's holiday season, retail compensation is only moderately higher than a year ago. Housing markets in the region remain tight--particularly in the New York City area, where sluggish sales and surging prices are attributed to a shortage of homes on the market. Still, new construction activity fell markedly in both September and October--possibly hampered by labor and land constraints. Regional purchasing managers report fairly sturdy growth in manufacturing activity, along with increasingly widespread input price increases. Banks report continued declines in loan demand, a slight tightening in credit standards, and further improvement in delinquency rates. Consumer Spending Most retailers indicate that sales were well below plan for the first three weeks of November, but well above plan over Thanksgiving weekend. For the month overall, sales were mixed-compared to last November, changes in same-store sales ranged from down 5 percent to up 6 percent. Virtually all retailers indicate that sales of household merchandise--tableware, appliances, floor coverings, furniture, etc.--were particularly strong. On the other hand, apparel sales were uniformly sluggish, partly due to unseasonably mild weather, though there was some pickup toward the end of the month. Merchandise prices and costs are still reported to be essentially flat. A number of contacts describe the current holiday season as "very promotional," with heavier than normal discounting this early in the season; however, most describe the current pricing environment as similar to last year's. Retailers generally indicate that compensation (wages and bonuses) for seasonal workers has not increased significantly from a year ago; most contacts indicate that workers are in short supply but that staffing is not much more difficult than during last year's holiday season. Separately, an annual Conference Board survey, conducted in November, indicates that the average household in the Middle Atlantic region plans to spend moderately less on holiday gifts than in last year's survey; roughly 15 percent of respondents plan to make at least one purchase over the Internet. Construction and Real Estate Despite tight housing markets, especially around New York City, home construction has slowed sharply. Seasonally-adjusted housing permits in New York and New Jersey fell more than 20 percent in October, on top of a 12 percent drop in September, and were down 30 percent from a year earlier; the steepest declines were in the multi-family sector. New Jersey's housing market is "a little less frenetic than it has been, " according to an industry expert, but still "tight as a drum." There are signs that construction activity is being restrained by a scarcity of both labor and usable land. With low inventories and long construction lags, builders in northern New Jersey are now reported to be doing some speculative building of houses in the $500,000-and-over price range--an "atypical" practice. In New York State, while single-family existing home sales slipped below year-earlier levels in October, the average selling price has risen 8 percent over the past 12 months. Moreover, both the sharpest declines in unit sales and the steepest increases in selling prices were recorded in and around New York City. This is consistent with ongoing complaints from realtors of plenty of buyers but not enough sellers. Similarly, average selling prices for prime Manhattan co-ops and condominiums are reported to be up 10-15 percent from a year ago, with the steepest gains on smaller units. Similarly, a major Manhattan realtor reports a persistent shortage of rental housing, with rents running 10-20 percent higher than a year ago. Reports from other parts of the city suggest comparable increases. Other Business Activity Purchasing managers report steady growth in manufacturing and increasingly widespread price pressures. Buffalo-area purchasers indicate that manufacturers' new orders strengthened in October, while production activity moderated; they also report further firming in commodity prices. Rochester-area manufacturers report some improvement in general business conditions, following a slump in September, along with increasing commodity price pressures. More currently, purchasers in the New York City area report some strengthening in business activity in November--in both the manufacturing and non-manufacturing sectors--along with persistent and broad-based increases in input prices. They also report that fourth quarter hiring intentions were the strongest since the inception of the survey in 1994. Manhattan hotel room rates and occupancy rates rebounded in the third quarter (on a seasonally adjusted basis), after slipping modestly in the second quarter. Separately, labor markets remained fairly strong in October. Private-sector job growth accelerated noticeably in New York but slowed in New Jersey; both states registered slight declines in unemployment in October. Financial Developments Demand for loans continued to weaken since the last report, according to lenders at small to medium sized District banks. Demand was weak in every category except commercial and industrial loans, where it was steady. Refinancing activity continued to decline, with almost half of respondents reporting decreases and only 3 percent reporting increases. On the supply side, the vast majority of bankers indicate that they left credit standards unchanged, though a few continued to report some tightening. Interest rates increased across the board on both loans and deposits. Finally, delinquency rates continued to drop in all loan sectors--most notably in commercial and industrial loans. Return to top Boston Philadelphia