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Second District--New York

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Economic growth in the Second District has slowed since the last report, though the labor market has remained fairly firm. Manufacturers report some weakening in business activity as of early December but note some improvement in early January. In general, contacts outside the manufacturing sector report little or no growth in business activity but some pickup in hiring. Retailers indicate that sales were relatively weak for the holiday season overall (November and December). Tourism activity in New York City has remained strong. Housing markets remain mixed but mostly weak, with the exception of Manhattan's co-op and condo market. Office markets in and around New York City were stable in the fourth quarter: vacancy rates are little changed since the last report, while asking rents are up slightly. Finally, bankers report weakening loan demand across the board, particularly for home mortgages, tightening credit standards in all categories, and rising delinquency rates, particularly on consumer loans.

Consumer Spending
Retailers report mixed but generally weak sales results for the holiday season. Overall, it appears that sales were flat to up modestly from 2006 levels. One major retail chain reports that same-store sales in the District were on plan, rising 5 percent from a year earlier, whereas another indicates that sales were below plan, falling more than 3 percent. Separately, a trade association survey of retailers across New York State indicates that sales were somewhat disappointing, with two in five indicating weaker sales than in 2006. In general, sales are reported to have picked up moderately after Christmas and into early January. Geographically, sales were reported to be relatively strong in New York City stores, as well as at those in the Buffalo area, with strength in the latter attributed to large numbers of Canadian shoppers.

Tourism activity in New York City remained strong through year-end. Hotels remained at close to full capacity in November and December. Hotel occupancy rates were reported to be close to 90 percent in both November and December, with room rates running roughly 13 percent ahead of a year earlier. Broadway theaters report that attendance and revenues bounced back in December, following the strike that shut down many shows for the final three weeks of November. Both attendance and revenues were down roughly 4 percent from a year earlier in December but still at relatively strong levels. Regional surveys point to declining consumer confidence in the final months of 2007. Based on the Conference Board's survey of Middle Atlantic residents, confidence fell for the third straight month in December and was at its lowest level in over two years. Siena College's survey of New York State residents shows confidence falling sharply in November and holding steady at a low level in December.

Construction and Real Estate
Office markets in the New York City area were generally stable in December and for the fourth quarter overall, with Manhattan's market remaining tighter than those in the surrounding areas. There was some slowing in leasing activity throughout the metro area, though vacancy rates were little changed, while asking rents rose modestly. In Manhattan, the Downtown market continued to tighten, offsetting some softening in Midtown. An industry contact notes that large rent differentials are prompting some firms to move from Midtown to Downtown Manhattan. Overall, Manhattan asking rents, which had been rising sharply through the third quarter, flattened out somewhat in the fourth quarter, though they continued to run roughly 25 percent ahead of a year earlier. The only other market registering double-digit rent increases over the past year is Fairfield County, Connecticut.

Housing markets in the District continue to be mixed. Manhattan's co-op and condo market showed continued resilience in the fourth quarter. A major appraisal firm reports an outsized increase in the average transaction price in the fourth quarter but attributes this mainly to a shift in the mix of units to newer, high-end condos; this contact estimates that prices of comparable units are up roughly 6 percent from a year earlier in Manhattan, with unit sales up 3 percent from a year earlier. In contrast, on Long Island, both prices and sales continue to run below year-ago levels. More broadly, reports from Realtors across New York State indicate increasingly weak market conditions for single-family homes, with prices down roughly 10 percent from a year ago and unit sales down 15 percent.

Other Business Activity
A major New York City employment agency, specializing in office jobs, describes hiring activity as surprisingly brisk in December, which is usually a slow month; hiring demand remained strong from the legal industry and the financial sector--largely hedge funds and private equity firms. The supply of qualified office workers continues to be characterized as sparse.

New York State manufacturers report that business activity weakened somewhat as of early December, but note some improvement in recent weeks. However, contacts report some further pullback in hiring activity, as well as hiring plans; they also express considerably less optimism, in general, about the six month outlook than in recent months. Manufacturers report continued widespread escalation in prices paid and prices received--both current and expected. Overall, non-manufacturing firms in the District report little or no growth in the level of business activity and express considerably less optimism about the general outlook than a few months ago. Unlike manufacturers, though, these contacts report a pickup in hiring and expect their employment levels to increase, on balance, in the first half of 2008.

Financial Developments
Small- to medium-sized banks report falling demand for all types of loans--particularly in the residential mortgage category, where more than four in five respondents indicate declining demand. There were also fairly widespread declines in demand for consumer loans, and in refinancing activity. For all loan categories, respondents indicate further tightening of credit standards. No bankers reported eased standards in any loan category. Overall, the extent of tightening was comparable to the prior (November 2007) survey. Consistent with weakening demand, bankers report a decline in the spreads of loan rates over cost of funds for all types of loans. Again, the decline was most pronounced in the residential mortgage category. Bankers also reported a decrease in the average deposit rate. Finally, respondents indicate increases in delinquencies across all loan categories--most notably for consumer loans, where increases are reported to be more widespread than at any time in at least 13 years.

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Last update: January 16, 2008