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Federal Reserve Districts

Second District--New York

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The pace of activity in the Second District's economy slowed somewhat since the last report. Business contacts across a variety of sectors indicate that activity has flattened out in recent weeks and that hiring has tapered off. Retail sales remained fairly sturdy in June but were mixed in early July. Consumer confidence has remained at low levels. Tourism activity has remained strong. Commercial real estate markets have been mixed since the last report, with office markets mostly stable but industrial markets weakening somewhat. The residential purchase market has been steady to somewhat softer, while the rental market has shown further signs of strengthening; there continues to be little new home construction. Finally, bankers report increased demand for commercial and industrial loans, lower delinquency rates on such loans, and no change in credit standards in any category.

Consumer Spending
Non-auto retail sales continued to run on or above plan in June, with same-store sales running 1 to 5 percent ahead of a year earlier, though reports for early July were more mixed. A number of contacts note that sales of apparel have been performing relatively well, while sales of home goods have been on the sluggish side; one contact notes that fashion apparel has been selling considerably better than more basic items. One large chain reports somewhat stronger sales in its New York City stores than elsewhere in the region; part of this is attributed to tourism. Moreover, one large retail mall in western New York State notes that a continued brisk flow of Canadian shoppers has been a major factor in driving sales. Retail inventories are generally reported to be in good shape. Prices appear to be relatively stable overall: one retail chain indicates that it has raised prices moderately on some lines, but another contact notes that there is somewhat more discounting of merchandise than at this time last year. Sharply higher cotton prices are expected to push up clothing prices moderately in the second half of the year.

Auto dealers in upstate New York report that sales were mixed in June. Rochester-area dealers note some deceleration in sales, mainly attributed to low inventories or stock-outs due to ongoing Japan-related disruptions. On the other hand, Buffalo-area dealers indicate some pickup in sales in June, after a sluggish May, as inventory problems begin to subside. Used cars are said to be selling well. Auto-industry contacts note improvement in both retail and wholesale credit conditions.

Consumer confidence surveys continue to give mixed results. Siena College reports that consumer confidence among NY State residents slipped in June, following a good gain in May, with declines occurring both upstate and downstate. In contrast, the Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ, Pa) rose in June, following a steep drop in May. Still, both surveys show confidence mired at low levels. Tourism activity in New York City has remained quite strong since the last report, as reflected in persistently high hotel occupancy rates, room rates that run 6 to 8 percent ahead of a year earlier, and a pickup in Broadway theatre attendance and revenues.

Construction and Real Estate
Residential construction has remained depressed and housing markets across the District have remained sluggish since the last report, although there has been further improvement in the rental market. An authority on New Jersey's housing industry reports that the resale market has remained weak, and that the level of optimism appears to have waned. Prices of existing homes have continued to drift down, largely reflecting a preponderance of "distressed" sales; otherwise, prices across northern New Jersey are generally flat. While the inventory of unsold new homes is fairly lean now, the inventory of available existing homes remains elevated--as high as 16 months of sales if units in foreclosure and other distressed properties are included. Buffalo-area Realtors also report some weakening in market conditions in May and June; while foot traffic has been fairly brisk, few people have made offers. More generally, sales activity across New York State has been steady to weaker. A major New York City appraisal firm reports that both sales and prices of co-ops, condos, and single-family homes remain flat overall--both in Manhattan and in the outer boroughs--with the high end of the market accounting for a larger share of sales than last year.

In contrast with the weakness in home purchase markets, rental markets have shown increasing strength. Manhattan's apartment rental market has strengthened since the last report. Rents on new leases were reported to be up 6 percent in June from a year earlier in June. In addition, one contact notes that landlords have pulled back on concessions, which are now reportedly being offered on fewer than 5 percent of new leases, down from 60 percent in mid-2010. Separately, the Jersey shore summer rental market is reported to be fairly strong this year, though the sales market for rental units remains sluggish. More broadly, many New Jersey landlords are reported to be pushing through rent increases for the first time since the recession.

Commercial real estate markets have been steady to somewhat weaker since the last report. Office vacancy rates and rents were generally stable across the District during the second quarter: market conditions improved slightly in the Buffalo and Rochester metro areas and in Manhattan, but they weakened moderately in northern New Jersey and metropolitan Albany. However, industrial real estate markets weakened modestly across most of the District, with vacancy rates edging up and rents drifting down.

Other Business Activity
Reports from business contacts point to some leveling off in the labor market. A major New York City employment agency reports that recruitment activity has been steady but lackluster since Memorial Day. Hiring in the legal industry has continued to improve from very depressed levels, with large firms hiring once again. Financial sector hiring has been spotty. Still, the flow of applicants for office jobs has declined somewhat. More broadly, contacts in both the manufacturing sector and other industries report some tapering off in hiring activity since the last report, though employment levels are still expected to increase moderately over the second half of 2011.

Looking at overall business activity, manufacturing firms in the District report a pause in growth in June and early July, based on the latest Empire State Manufacturing Survey. Manufacturers also report that price pressures have eased since the last report and that their selling prices are steady; however, both prices paid and prices received are expected to increase in the months ahead. Non-manufacturing firms also indicate that business activity has flattened out since the last report, and contacts have become somewhat less optimistic about the near term outlook. Non-manufacturing firms report that cost pressures remain widespread and more contacts than last time report that they are raising selling prices.

Financial Developments
Bankers indicate increased demand for commercial and industrial loans but little or no change in other loan categories. Bankers also reported a moderate decline in the demand for refinancing. Credit standards were reported to be virtually unchanged for all loan categories--the first time in a number of years that respondents did not report net tightening on the commercial and industrial segment. Respondents report decreases in spreads of loan rates over costs of funds for all loan categories, especially residential mortgages; they also indicate a decrease in the average deposit rate. Finally, bankers indicate lower delinquency rates on commercial and industrial loans but little or no change in delinquency rates for the other categories.

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Last update: July 27, 2011