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Federal Reserve Districts

Second District--New York

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The Second District's economy has grown at a somewhat faster pace since the last report, led by brisk holiday-season spending. Labor market conditions, as well as prices, have remained generally stable. Manufacturers report modestly improved general business conditions and steady employment since the last report, along with increased optimism about the near-term outlook. Retailers generally characterize holiday season spending as robust, particularly in the final days before Christmas and right after. Auto dealers report that sales have remained strong since the last report. Tourism activity has held steady at a high level. Conditions have generally remained stable in the housing market, though the rental market has continued to improve. Commercial real estate markets have been stable to moderately stronger in late 2011. Finally, bankers report increased loan demand, steady to somewhat tighter credit standards, and lower delinquency rates across the board.

Consumer Spending
Retailers generally characterize holiday-season spending as strong and most report that sales were on or above plan. A trade association survey of retailers across New York State points to robust spending, particularly in the final week before Christmas and on the day after; most contacts indicated that sales were at least as strong as in 2010, led by electronics--particularly video games and consoles. One large retail chain reports that November-December sales were above plan and up moderately from a year earlier, while another major chain indicates that sales were down from 2010 levels but still roughly on plan. Both contacts note that unseasonably mild weather hampered sales of outerwear and other seasonal apparel. However, two major malls in upstate New York say that mild weather--along with brisk demand from Canadian shoppers--contributed to strong sales in November and early December. A number of contacts also note exceptional strength in on-line sales, with some reporting year-over-year gains in excess of 40 percent. Retail prices are reported to be generally stable.

Auto dealers in upstate New York report that sales activity continued to be robust in November and early December, running well ahead of comparable 2010 levels--particularly for used vehicles. Inventories have risen along with sales but remain tight for some of the more popular models. Wholesale and retail credit conditions remain favorable.

Consumer confidence has rebounded from its October lows. The Conference Board's survey of residents of the Middle Atlantic states (NY, NJ, PA) shows consumer confidence rising sharply in both November and December, back up to the levels seen last spring. Results from Siena College's November survey of New York State residents (latest available) shows consumer confidence rebounding moderately. Tourism activity has held generally steady at a strong level since the last report. New York City hotels report that occupancy rates continued to run at just over 85 percent in November and the first few weeks of December--up moderately from a year earlier. Room rates were up 2-3 percent from a year earlier, and total revenues per room were up about 6 percent, though total revenues in the local hospitality industry are up considerably more due to an increased number of hotel rooms. On a more negative note, though, Broadway theaters report that attendance continued to run roughly 5 percent below year-ago levels in December, while revenues fell below comparable 2010 levels for the first time since the August hurricane.

Construction and Real Estate
Residential rental markets continue to strengthen, while real estate sales have shown little change since the last report and new development activity continues to be sluggish. New York City's rental market remains tight: rents continue to rise, as the inventory of available units remains lean. Manhattan co-op and condo prices were little changed in the fourth quarter, while sales activity slowed from its fairly brisk third quarter pace. Market conditions were reported to be similar in Brooklyn but a bit softer in the other boroughs and on Long Island. On a more positive note, one industry expert in New Jersey sees improved fundamentals in the housing market and foresees a pickup in market conditions in 2012. Real estate contacts in other parts of the District also note some increase in optimism among developers.

Commercial real estate markets have been steady to somewhat stronger since the last report. New York City's office market has picked up in late 2011, with office vacancy rates edging down and asking rents rising. There were also modest signs of improvement in Westchester and Fairfield counties and in the Albany area, whereas office markets in northern New Jersey and western New York State appear to have slackened modestly. Industrial leasing markets were generally steady overall: conditions firmed in Long Island but showed some signs of softening across upstate New York; in the rest of the District, conditions were little changed.

Other Business Activity
A major New York City employment agency reports that hiring activity has slowed somewhat since October, particularly in the financial services sector, but notes that it is difficult to gauge the underlying climate during this typically slow season. Contacts at major retail chains indicated that they hired more seasonal workers this year than last. More broadly, both manufacturers and service-sector firms continue to report that employment levels at their firms remain steady, on average, though a growing number of manufacturing contacts across New York State plan to hire more workers in the months ahead.

Manufacturers across New York State report that general business conditions improved since the last report, and respondents have grown considerably more optimistic about the near-term outlook. Both manufacturers and other firms report that their selling prices remain flat, though a growing number expect to raise prices in the months ahead. Separately, a contact in the trucking industry reports that shipping tonnage (volume) has picked up considerably in recent months and was up 6 percent from a year earlier in November.

Financial Developments
Bankers report an increase in demand for all loan categories except consumer loans, where demand held steady. The increase was most prevalent for commercial mortgages where four times as many bankers reported rising than falling demand. Respondents also indicate widespread increases in demand for refinancing. Bankers' responses suggest some tightening of credit standards for commercial and industrial loans, but no change for the other loan categories. No banker reported an easing of standards in any category. Respondents note a decrease in spreads of loan rates over costs of funds for all loan categories. Bankers also indicate widespread decreases in the average deposit rate. Delinquency rates are reported to have decreased for all loan categories. The improvement was most prevalent in commercial and industrial loans, where nearly three times as many respondents reported lower than higher delinquencies.

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Last update: January 11, 2012