November 1, 2000 Federal Reserve Districts Second District - New York

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The Second District's economy has shown few, if any, signs of slowing since the last report, but price pressures have diminished. Retailers report that sales recovered somewhat in September, following a sluggish summer, and continued to improve in early October, running on or close to plan. Almost all retail contacts say that selling prices have declined a bit. Commercial real estate markets have tightened further throughout the New York City area; office rents continued to soar in Manhattan but have increased moderately in the suburbs. Housing markets remain strong, despite recent volatility in the financial markets. Regional manufacturers report that business conditions remain favorable, while commodity price pressures have abated. Finally, bankers report little change in loan demand, tightening credit standards on commercial loans, and falling delinquency rates. Consumer Spending Retail sales, which had been lackluster for most of the summer, have picked up somewhat in recent weeks. On average, same-store sales were little changed from a year earlier and below plan in September, but were up moderately (and on or close to plan) in the first half of October. Apparel sales, though still sluggish in a few cases, were said to have improved since the last report. Two contacts indicate that low import prices have prompted them to carry an increasing share of imported merchandise, especially apparel. But most retailers note that the bulk of their goods already come from overseas. One contact notes that there has been a relative slowing in demand for merchandise targeted to the lower end of the income spectrum and conjectures that this reflects cash flow issues--specifically, the impact of higher gasoline prices on discretionary income, as well as concern about higher heating oil prices. Most retailers report that inventories are in fairly good shape; a few describe them as "a bit heavy," but one describes them as "a little thin." On balance, selling prices have declined recently, reflecting an increasingly competitive retail environment; merchandise costs have been essentially flat, with falling prices for apparel and electronics offset by higher prices on household supplies, as well as health and beauty products. A few retailers indicate that rising electricity and utility costs are having an effect on their bottom line, but only one is being adversely affected by transportation costs. The general consensus is that, for the most part, rising transportation costs have been absorbed by vendors. Labor shortages persist, but retailers continue to hold the line on wage increases, Construction and Real Estate Commercial real estate markets across the New York City area have tightened further. In Manhattan, office rents continued to soar in the third quarter--up more than 30% over the past year--while availability rates (space either vacant or available in the next 12 months) fell to 3.2 percent in Downtown and 3.2 percent in Midtown. Moreover, based on the moderate volume of new construction in the pipeline, the total inventory of office space in Manhattan is projected to increase by only 2 to 3 percent over the next three years. Vacancy rates in the nearby suburban markets also fell, though from higher levels, while office rents in these areas are up roughly 5 percent over the past year. Separately, in Buffalo, a commercial real estate firm reports that businesses are increasingly interested in locating downtown, in order to access the high concentration of fiber-optic lines. Housing markets across the District have remained strong since the last report. Albany-area realtors indicate that the local housing market remained strong in the third quarter, with both sales and prices up from a year earlier, despite a strong 1999 comparison. Markets in other parts of upstate New York remain mixed. Homebuilders in northern New Jersey say that recent volatility in financial markets has had no discernible effect on the housing market--at most, the queues for new custom construction have shortened a bit. An industry expert says that prices of both new and existing houses are "still going through the roof." In addition to the ongoing home construction and remodeling boom, demand for skilled construction workers in New Jersey is being boosted by a wave of new school construction that has begun recently and is expected to continue for a number of years. Similarly, New York City's co-op and condo market shows few signs of weakening. In the third quarter, prices of prime Manhattan apartments continued to run roughly 20 percent higher than a year earlier, according to two leading real estate firms. However, activity slowed, as roughly 15 percent fewer apartments sold in the third quarter than a year earlier and the average listing time rose. More recently, local real estate contacts describe market conditions as relatively strong in the first half of October, with recent volatility in the stock market having no apparent effect. In general, apartment sales have picked up, after a summer lull, though the market is described as "less frenzied" than during the spring--bidding wars still occur, but they have become much less common than earlier in the year. Other Business Activity Regional manufacturers report that business activity remains strong, while upward price pressures have clearly abated. Buffalo purchasing managers report that manufacturing activity accelerated in September, while price pressures were less widespread than in August. Two local manufacturers report that domestic demand is still strong, but that overall sales have slowed since mid-year, largely due to weakness in the Euro currency. Oil refineries are said to be running flat out, to the point that they are not even pausing production for routine maintenance. In the New York City area, purchasing managers continue to report sturdy growth in manufacturing activity, though gains were less widespread than in August. While purchasers note widespread price increases for energy, chemicals and paper, as well as a variety of service inputs, overall price pressures were reported to be less pronounced than in August. No information is available yet on the cost of paper for the upcoming World Champions' parade. Rochester-area purchasers report continued improvement in business conditions, and ongoing increases in employment; they also note a marked diminution in price pressures, which had been fairly widespread for most of this year. Separately, despite ongoing layoffs at major local manufacturers, a Rochester-area employment agency reports persistent trouble filling job openings--they report an adequate pool of available workers but say firms are not paying enough to attract them. Financial Developments Overall demand for loans at Second District banks remained stable since the last survey, with a slight pickup in the commercial and industrial sector offsetting some further weakening in demand for mortgages--both residential and non-residential. Refinancing activity continued to decrease, as it has for the past year and a half. Credit standards were tightened further on commercial and industrial borrowers, but were little changed for other customers. Lending rates were little changed for all types of loans, but average deposit rates rose, on net--50 percent of those surveyed report higher deposit rates than last time, while only 10 percent say they lowered rates. Delinquency rates fell for all loan categories, with the most notable decline in the consumer loan segment. Return to top Boston Philadelphia