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Federal Reserve Districts

Second District - New York

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Full report

The Second District's economy has shown signs of rebounding from the depressed levels of the last report. Despite the apparent pickup in economic activity, labor markets have continued to show signs of deteriorating. Department stores report that sales have improved steadily since the last report, though they remain below plan. While prices appear steady to somewhat lower, businesses report widespread increases in insurance costs.

Housing markets in and around New York City have rebounded as of mid-November, though Manhattan's rental market remains soft. Manhattan's office market continued to ease in October, as a sizable amount of space has come onto the market. Hotel occupancy rates rebounded considerably in October, though they are still about 10 to 15 points lower than a year ago. Purchasing managers report substantial weakening in business conditions in the New York City area, but only modest declines in upstate New York; they also indicate steady to declining input prices. Finally, bankers report weaker demand for consumer loans, stronger demand for home mortgages, further tightening in credit standards, and little change in delinquency rates, based on the latest survey, taken in early November.

Consumer Spending
Retailers generally report that sales were below plan in late October and early November, with year-to-year comparable store sales ranging from down 8 percent to up 4 percent. Discounters continued to out-perform department stores, but by a narrower margin than in the last report. Sales at Manhattan stores, which experienced the sharpest declines in the weeks following the attack, have rebounded briskly in October and early November, though they continue to under-perform.

A major discount chain notes increased traffic but lower sales per customer. One large department store chain reports particular weakness in luggage sales, but some pickup in home-related merchandise, such as furniture, linens and kitchen-wear. In general, apparel sales have been sluggish, though the women's segment has done substantially better than men's wear.

Most contacts report that inventories are a bit high but in relatively good shape. However, markdowns are expected to be more pronounced this holiday season than last year. Selling prices and merchandise costs are reported to be running little changed to slightly lower than a year ago. While wages are little changed and energy costs are down noticeably, retail contacts report sizable increases in medical insurance costs and dramatic increases in property insurance premiums.

Separately, a survey of New York State residents conducted by Siena College in October shows a moderate rebound in consumer confidence in the New York City area, following steady declines from June to September. In upstate New York, confidence levels have been fairly steady since July but are substantially lower than a year ago.

Construction and Real Estate
Manhattan's office market continued to ease in October--availability rates edged down in Midtown Manhattan but rose slightly in Midtown South and rose sharply in Lower Manhattan. Part of Lower Manhattan's softening is due to several of the less seriously damaged buildings near Ground Zero coming back on-line. Also, ongoing transportation disruptions and sub-par air quality may be affecting demand, at least in the short run. A large majority of the displaced firms have reportedly relocated to Midtown Manhattan.

On the residential side, market conditions appear to have improved since the last report. Homebuilders in northern New Jersey indicate that demand for new homes has picked up since the last report. Traffic has improved markedly, though prospective buyers have become "more tenuous"--waiting longer to buy, making more repeat visits, and ordering fewer upgrades and amenities. Prices have held steady, though the reduction in upgrades is expected to reduce the reported average price. Labor and materials are no longer in short supply, as had been the case earlier in the year.

In Manhattan, a major real estate appraisal firm reports that co-op and condo sales volume has rebounded slowly but steadily in recent weeks, though it is still lower than a year ago. Separately, a leading New York City real estate firm reports that apartment sales activity has picked up substantially in the first half of November, following a slump in late September and October, while the number of listings has increased only moderately. For the most part, there is lively bidding on units whose asking prices have been reduced by 5 to 10 percent. Both contacts indicate that the high end of the market has weakened the most, while reduced mortgage rates have reportedly helped the market for small apartments. Geographically, prices in Chelsea, Soho, and Tribeca are said to be down about 10 percent, on average, but selling prices in uptown Manhattan appear to be down only a few percent.

Other Business Activity
New York City employment plunged by more than 70,000 in October, while New Jersey's job count rose by 11,000. The New York number was depressed, and New Jersey's boosted, by the--in many cases quite temporary--displacement of Wall Street jobs across the Hudson. A major New York City employment agency, specializing in mid-level office jobs, reports extremely weak labor market conditions; the only notable hiring activity is coming from law firms, while financial and business service firms are hiring only very selectively. More generally, while small firms are said to be offering slightly lower salaries than earlier in the year, compensation at larger firms is generally flat.

Tourism to New York City appears to have rebounded since the last report. Manhattan hotels report that occupancy rates, which plunged below 50 percent in late September, rebounded to about 75 percent in October--only 12 points lower than a year earlier. Some firms displaced temporarily by the terrorist attack have been using Manhattan hotels as interim office space. Hotels have reportedly reduced their room rates by 25 percent, on average, since the attack, with some establishments in Lower Manhattan making reductions of up to 40 percent. Hotels in northern New Jersey report occupancy rates close to 70 percent in October--also down about 10 to 15 points from a year ago--and similar trends are reported in Long Island.

Purchasing managers report substantial weakening in business conditions in the New York City area, with a sharp deterioration in both the manufacturing and non-manufacturing sectors between early-September and early-October. Widespread price declines were reported, especially for manufacturing inputs. The picture in upstate New York appears less dire: Buffalo-area purchasers note some further weakening in business conditions in October--employment declines were fairly widespread, but trends in production activity and new orders were mixed. Rochester-area purchasing managers report continued weakness in general business conditions, but to a lesser extent than in September; input prices are reported to be flat to lower.

Financial Developments
According to the latest survey of small to medium-sized Second District banks, conducted in November, demand for loans has been mixed since the last report. While demand for consumer loans decreased fairly substantially, on balance, widespread increases were reported for residential mortgages, as well as refinancing activity. Demand for nonresidential mortgages and for commercial and industrial loans remained stable.

On the supply side, credit standards tightened further for all types of loans, except for residential mortgages, which remained stable. No bankers report easing of standards for any types of loans. Widespread declines were reported in both loan rates and deposit rates. Delinquency rates were reported to be little changed for all types of lending.

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Last update: November 28, 2001