September 8, 2004
Federal Reserve Districts
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The Second District's economy has shown some signs of slower growth in recent weeks. Retailers mostly report that sales softened further in August and were below plan, while selling prices were up modestly. The housing market has shown further signs of leveling off, though prices remain well above year-ago levels. The resale market has shown signs of moderating, while the rental market has continued to firm gradually. New York City's office market strengthened again in July, and a leading employment agency reports that the city's labor market has been stable and relatively firm since the last report. Tourism activity moderated somewhat in August, though the upcoming Republican convention is seen boosting activity for the week leading up to Labor Day. Finally, bankers report some slowing in household loan demand but a further pickup in the commercial segment; both credit standards and delinquency rates are reported to be little changed.
Retail sales were mostly below plan in August, after a mixed July, as almost all chains report weak demand for back-to-school merchandise. One contact did note that sales have been relatively strong and ahead of plan. Weather was not considered to be a factor in the soft results. One retailer attributes the recent softness to a somewhat later start to the school year. A few contacts note that, while traffic has been weak, higher-priced merchandise is selling relatively well. Some contacts report particular weak sales of goods for the home. More generally, inventories were still generally described as relatively lean. Selling prices are reported to be up modestly, mainly reflecting low stocks of summer clearance merchandise and, thus, fewer markdowns.
Consumer confidence rose in July, according to two separate surveys. Based on Siena College's survey of New York State residents, confidence rose sharply, led by a strong rebound in the New York City area. At the same time, the Conference Board's survey of Middle Atlantic state (NY, NJ, PA) residents shows confidence rising for the second consecutive month, reaching a roughly two-year high in July.
Construction and Real Estate
Housing markets, though still generally firm, have shown some scattered signs of moderating in recent weeks. New Jersey homebuilders report that the market for new homes remains tight and prices remain buoyant, reflecting escalating land costs. One contact expresses concern about affordability, noting that a growing proportion of buyers are opting for adjustable-rate mortgages. Lumber prices, though substantially higher than a year ago, have leveled off in recent months, but concrete prices have continued to rise.
New Jersey Realtors report that home prices were up more than 10 percent in the second quarter, compared with a year earlier, and the number of homes sold rose more than 20 percent. Similarly, home prices across New York State continued to run more than 10 percent ahead of a year ago in July, while unit sales were relatively strong. More recently, however, one real estate contact notes some cooling in the resale market, reflected in a growing gap between asking and offering prices and a rising number of homes on the market. Manhattan's rental market has continued to improve, particularly at the high end, and rents on new leases, though still down roughly 5 percent over the past year, have continued to rise in recent months.
Manhattan's office market strengthened further in July. Downtown's rate fell another 0.5 point to 12.4 percent--the lowest level in more than two years--while Midtown's rate fell 0.3 point to 11.1 percent. Notably, the total volume of space available for sub-lease is reported to have reached its lowest level since October 2001. Overall, average asking rents were little changed in July.
Other Business Activity
A major New York City employment agency reports that labor demand appears to have held steady at favorable levels in August, with Wall Street continuing to hire. However, a contact in the securities industry contact notes that overall revenue growth has weakened recently, and expects the industry to reduce employment over the next year.
A contact in the shipping industry reports that, after a sluggish second quarter, volume through the Port of New York and New Jersey rose substantially in July and August, and has pulled well ahead of year-ago levels. This recent strong volume partly reflects a diversion of shipments from West Coast ports and is expected to continue for at least the next few months.
Tourism-related industries were mixed but generally operating at high levels in August. Manhattan hotels showed some signs of slowing in August, compared with June and July, when occupancy rates approached 90 percent. However, an industry contact notes strong bookings for the week before Labor Day, which is attributed to the Republican convention. Average room rates have continued to run roughly 10 percent ahead of a year ago. Broadway theaters also report some pullback in business in August, though comparisons to last year are complicated by the 2003 blackout.
Small- to medium-sized banks in the Second District report mixed demand for loans since the last report. On commercial and industrial loans, more than twice as many bankers report increases as decreases. Demand for commercial mortgages held steady, while lower demand was reported for consumer loans and especially residential mortgages. Half of all surveyed bankers reported a decrease in refinancing activity, with just 6 percent reporting an increase.
Loan rates increased across all categories, particularly on commercial credit and residential mortgages. Most bankers also report further increases in deposit rates. Credit standards remained the same, with almost all respondents reporting no change across all loan segments. Bankers reported unchanged delinquency rates across all loan categories except residential mortgages, where further improvement was noted.