September 17, 1997 Federal Reserve Districts Second District - New York

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The Second District's economy has continued to expand at a steady pace since the last report. Major retailers report mixed results for August; on balance, sales were close to plan. Manhattan's office markets tightened further in August, though rents remain fairly stable. Housing markets continued to show moderate improvement in recent weeks, led by a pickup in upstate New York and northern New Jersey. Regional purchasing managers' reports indicate moderate growth in manufacturing activity in August. Price pressures in the District remained modest, on balance. Finally, local banks report that loan demand picked up, while delinquency rates were little changed. Consumer Spending Most major retailers in the region report that sales were on to slightly above plan in August, after running well above plan in July. Compared to a year ago, same-store sales gains for August ranged from 0 to 9 percent. While most retailers report that women's apparel remains the strongest category, some contacts note that sales of home goods have picked up substantially and were running well above plan in August. The UPS strike was generally said to have a minimal impact on sales and merchandise availability; one contact estimates that the strike had a positive effect on sales, as consumers sought alternative channels to mail order. Inventories are at satisfactory levels in most cases, though one contact reports that they are "a bit thin." Merchandise costs are said to be essentially flat, though selling prices are reported to be up slightly. There has been no noticeable increase in retail wage pressures and a modest impact, at most, is anticipated from the recent hike in the minimum wage; however, some contacts express concern about labor shortages in the upcoming holiday season. Construction & Real Estate Manhattan's office market continued to tighten in July, but there is still no sign of upward pressure on rents. Midtown's office availability rate edged down to 11.0 percent at the end of July, from 11.3 percent in June; Downtown's rate fell to 20.1 percent from 21.0 percent. Over the past year, availability rates in both areas have fallen by more than 3 points, but rents have risen just 1 to 2 percent. The region's housing market continued to improve gradually overall, though there have been some intra-regional shifts. Despite ongoing anecdotes of bidding wars on New York City co-ops and condos, a large broker that tracks apartment sales in Manhattan reports that prices retreated in June and July, after surging 20 percent in the Spring months (year-to-date, the average per-room price is up roughly 5 percent from 1996 levels). Permits for new apartment construction in New York City and its northern suburbs continued to trend up in July. More such permits have been issued since the beginning of 1996 than in the prior five years combined; however, most of these have yet to come on the market. Permits for single-family homes were steady throughout the New York City metropolitan area in July. However, homebuilders in northern New Jersey report that sales of new moderately-priced homes picked up noticeably in late August and early September; contacts also report that home remodeling activity remains exceptionally strong. In upstate New York, new home construction remained at depressed levels in July, but sales and prices of existing homes rose sharply. While it is too early to tell if this is the start of a trend, even a moderate rise in demand may have a significant impact on the market, given the dearth of new construction in the past two years. Other Business Activity Regional purchasing managers report continued growth in the region's manufacturing sector in August, along with abating price pressures. Buffalo purchasing managers report that new orders and production activity accelerated in August, but that employment levels declined; purchasers also report that commodity prices stabilized, following a blip up in July. According to New York City area purchasers, conditions continued to improve in both the manufacturing and nonmanufacturing sectors, though growth slowed from July's brisk pace; prices paid for goods and services edged down in August. During the recent UPS strike, both organizations surveyed their members on its impact; in both surveys, slightly over a quarter of respondents noted a "severe" impact from the strike, though most anticipated that deliveries would be back on schedule within a few days after the end of the work stoppage. A major New York City employment agency specializing in office jobs reports that the labor market is "tremendously tight" and has grown progressively stronger over the past few months; last month was characterized as the "best August in our history". Still, consumer confidence in the Middle Atlantic states (New York, New Jersey, and Pennsylvania) remains well below the national average, after holding steady in August. A recent survey of large employers across the New York metropolitan area shows projected 1997-98 salary increases averaging 4.1 percent, about the same as in 1996-97. Tourism remained strong in July�although hotel occupancy rates edged down on a seasonally adjusted basis, room rates continued to run 10 percent above comparable 1996 levels. Financial Developments Bankers at small to medium sized banks in the Second District report stronger loan demand for all categories except consumer credit over the last two months. Demand for residential mortgages grew most notably, with 43 percent of bankers reporting stronger demand. Refinancing activity increased on net. Bankers appeared more willing to lend than they were two months ago, while credit standards were mostly unchanged, although lenders appear to be easing standards on consumer lending. Interest rates on all types of loans declined over the last two months, but deposit rates were mostly higher. Credit quality, as measured by delinquencies, was stable to slightly improved. In particular, delinquencies on commercial and nonresidential mortgages were down, while consumer and residential mortgage delinquencies were roughly stable. Return to top Boston Philadelphia