November 29, 2006
Federal Reserve Districts
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Second District economic activity appears to have accelerated since the last report, while price pressures are little changed. Labor markets have apparently strengthened in a number of sectors, including manufacturing. Manufacturers more generally report increasingly brisk growth in activity and little change in price pressures since the last report. Retailers indicate that sales were on or above plan in October and early November, with prices little changed. Tourism activity showed signs of strengthening. Two regional consumer surveys showed confidence rising sharply in October.
Housing markets remain mixed: New York City's rental market has tightened further, and there has been some pickup in co-op and condo sales, stemming the rise in the inventory of unsold units. In contrast, northern New Jersey's housing sector remains sluggish. Permits to build single-family homes fell sharply in the third quarter, but multi-family construction permits remained strong. Office markets in and around New York City generally tightened in October, with Manhattan Class A rents jumping to record highs. Finally, bankers report some weakening in loan demand in the household sector but little change in the commercial sector; they also note little change in credit standards and delinquency rates.
Tourism activity has shown increasing strength. Broadway theaters report that both attendance and total revenues rose steadily in October and early November, following a dip in September; in recent weeks, attendance has been running roughly 4 percent higher than a year earlier, while revenue is up nearly 12 percent. Manhattan's hotel occupancy rate remained close to 90 percent in October, which is little changed from both September and a year earlier; however, rising room rates pushed total revenue nearly 15 percent above comparable 2005 levels in October--the largest 12-month gain recorded this year. Hotels in the Buffalo-Niagara Falls area report rising occupancy rates over the past year.
Construction and Real Estate
In contrast, New York City's housing market has remained fairly robust: a major Manhattan appraisal firm reports that sales activity picked up in October and that selling prices remain moderately higher than a year ago. The inventory of unsold homes, though still fairly high, is reported to have leveled off in recent months, but there is a substantial volume of new construction in progress, much of which will flow onto the market during 2007. A major real estate firm reports that Manhattan's rental market has continued to tighten, in particular noting a shortage of large units, which has pushed up rents.
Commercial real estate markets across the New York City area showed further signs of tightening in the third quarter. In Manhattan, office vacancy rates fell to new cyclical lows at the end of October, while asking rents on Class A properties surged to their highest levels on record. Suburban markets were more mixed, but still generally strong on balance: office vacancy rates edged down to cyclical lows in Fairfield and Westchester Counties and were virtually unchanged in northern New Jersey; Long Island's vacancy rate, though still fairly low, climbed to its highest level since a year ago.
Other Business Activity
Various regional business surveys point to strengthening conditions in October and early November. Purchasing managers in the Rochester and Buffalo areas report increasingly widespread improvement in business conditions in October, and steady to lower price pressures; the Rochester-area survey also indicates a pickup in hiring. More recently our November Empire State Manufacturing Survey points to some acceleration in activity, a pickup in hiring activity, and some tightening in price pressures after some easing-off in recent months. Contacts in non-manufacturing industries also report expanding employment at their firms and anticipate widespread increases in wages over the next six months.