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Federal Reserve Districts

Second District--New York

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Full report

The Second District's economy has strengthened since the last report. Tourism has been exceptionally strong. Commercial real estate markets showed signs of tightening in July and August. Conditions in New York City's financial industry continued to strengthen since the last report, and Wall Street employment and compensation continue to expand. More broadly, there are indications that New York City area firms are stepping up hiring activity for the Fall season. Surveys of both manufacturers and purchasing managers indicate continued expansion in business activity in August. In contrast, retailers generally report that sales were below plan in August, hampered by unseasonably hot weather and rising energy prices. There are scattered signs of softening in the housing market, though the overall level of demand has remained fairly strong. Finally, bankers report a pickup in demand from the commercial sector but a dip in demand for home mortgage loans; delinquency rates also improved among commercial borrowers but were little changed in the household segment.

Consumer Spending
Most retailers report that sales were below plan in August, with contacts attributing the bulk of the weakness to unseasonably hot weather and rising energy prices. Overall, comparable-store sales were virtually unchanged from a year ago, with individual reports ranging from a 3 percent decline to a 3 percent increase. Still, retail inventories were generally said to be in good shape. Selling prices were little changed.

Tourism has continued to show exceptional strength since the last report. Manhattan hotels report that the overall occupancy rate rose more than 4 percentage points from a year earlier in July, to 86.2--the strongest July level on record--while average room rates were up nearly 15 percent. August is reportedly shaping up to be comparably strong. Broadway theaters indicate that attendance and total revenues slowed somewhat in the first three weeks of August; still revenues were running more than 5 percent ahead of a year ago, and industry conditions continue to be described as strong.

Construction and Real Estate
The region's housing market has shown signs of softening since the last report, though it is still characterized as strong. New Jersey builders report that housing demand remains fairly brisk, but that buyers are increasingly hesitant and that lenders have grown more skeptical about appraised home values. An industry authority reports that the rate of price appreciation has slowed and that there has been price discounting along the Jersey Shore, for the first time in three years.

The market for existing homes is also reported to have softened somewhat. In New York State, July home sales were off more than 7 percent from a year earlier, though prices continued to run 10-20 percent ahead. There has been some noticeable weakening in some upstate New York regions; in contrast, both sales and prices in New York City continued to run well ahead of a year ago. A leading appraisal firm reports that Manhattan's co-op and condo market has shown no significant signs of slowing since mid-year--listing times have not changed noticeably, the inventory of unsold homes remains steady at a low level, and prices have continued to increase, though at a somewhat slower pace. Finally, a contact specializing in Manhattan's rental market indicates that while rents have not risen significantly, there is a dwindling inventory of available apartments.

Commercial real estate markets across the New York City area showed further strength in July and August. Since mid-year, office availability rates have fallen to a four-year low in Midtown Manhattan and declined moderately in Lower Manhattan and northern New Jersey. Availability rates were generally stable in the rest of the metropolitan area. Rates were little changed in the Lower Hudson Valley and southwestern Connecticut; on Long Island, rates ticked up but were still about � point lower than a year ago. Office rents continued to climb in Midtown Manhattan and Long Island but were little changed across the rest of the metro area. Industrial markets in and around New York City saw little net change in vacancy rates since the last report, but there has been notable escalation in rents.

Other Business Activity
A major NYC employment agency, specializing in office jobs, reports that hiring activity for the upcoming Fall season appears to be strong, and that they are getting placement requests from clients they have not heard from for a few years. Conditions in the securities industry have continued to improve since the last report, as both profits and revenues have grown briskly; industry employment and compensation reportedly remain on a fairly strong growth path.

Surveys of both manufacturers and purchasing managers indicate continued expansion in business activity in August. However, a number of contacts indicate growing concern about rising energy prices adversely affecting their business in the months ahead.

Financial Developments
Bankers at small to medium-sized banks in the district report reduced demand for residential mortgages but increased demand for both commercial and industrial loans and commercial mortgages. Banks continue to report declining refinancing activity. Bankers reported unchanged credit standards across all loan categories. Higher loan rates were reported across all loan categories--particularly residential and commercial mortgages. Increased average deposit rates were reported by over 80 percent of bankers with no bankers reporting decreased rates. Finally, bankers report little change in delinquency rates on consumer loans and residential mortgages, but lower delinquency rates from the commercial sector.

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Last update: September 7, 2005