January 20, 1999 Federal Reserve Districts Second District - New York

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Economic growth in the District has picked up further since the last report, with very few signs of upward price pressures. Although retailers report mixed sales results for December, all experienced a strong pickup toward the end of the month, buoyed by cold weather and steep discounting; inventories were generally said to be in good shape in early January. The housing market continued to gain momentum in the fourth quarter, led by a strong rebound in New York City's co-op and condo market, continued brisk activity in the suburbs, and a marked recovery in sales activity in upstate New York. Manhattan's office market remains tight, although vacancy rates edged up from cyclical lows recorded in the third quarter; rents continued to rise, albeit at a slower pace than earlier in the year. Regional surveys of purchasing managers indicate a widening divergence between the manufacturing sector, which weakened in December, and non-manufacturing sectors, which continued to strengthen. New York City purchasers note that upward cost pressures for most contracted services moderated in December, while prices of other goods and services were flat. Finally, local banks report a normal seasonal decrease in loan demand, tightening credit standards, and declining delinquency rates. Consumer Spending Retailers indicate mixed sales results for December. Most retailers report that sales were sluggish in the first three weeks of December, but surged late in the month, buoyed by steep discounting and a long-awaited cold snap. Discounters registered particularly strong same-store sales gains compared to a year earlier, ranging from 4 to 9 percent; sales at general merchandise chains varied widely but gains were more modest on average. A survey of small New York State retailers indicates that average sales rose 3-5 percent from a year ago, buoyed by a 'last-minute rush' and 'drastic price cuts by merchants.' Sales of home-related merchandise were generally strong; however, sales of toys lagged. While mild weather for most of the holiday shopping season had raised concern about inventories of winter outerwear, most merchants were satisfied with early-January inventory levels. Construction and Real Estate The District's housing market showed further signs of strength in the fourth quarter. Single-family housing permits in New York and New Jersey continued to increase in November, but multi-family permits retreated a bit from October's extraordinarily high level. Total permits for the first two months of the fourth quarter were up 50 percent from a year earlier. More currently, homebuilders in New Jersey say that the housing market was unusually strong in December, with one contact saying it was the 'best month ever,' and another reporting 'unexpectedly high traffic' during the normally slow Christmas-New Year's week. Also, contractors describe remodeling activity as 'phenomenal.' New York State realtors report that sales of existing single-family homes were exceptionally strong in October and retreated only slightly in November, rising 9 percent above year-earlier levels. Year-to-date, sales are the strongest since 1988. Home prices were also firm in November, rising 6 percent above year-earlier levels. While the appreciation in home prices is mainly limited to the New York City area, sales volume is up strongly throughout the state. One contact in Rochester notes that 'warm weather and low mortgage rates' contributed to strong improvement in the local housing market in the fourth quarter; he sees 'no indication of a slowdown,' aside from the normal cold-weather lull. Revenues from New York City's mortgage recording tax were well above plan in November, reflecting strong conditions in the city's housing market. A major Manhattan real estate brokerage reports that the market for co-ops and condos improved sharply in mid-November and remained strong in December, with both sales and prices rebounding strongly in tandem with financial markets. While Manhattan's office market remains tight, office vacancy rates edged up in both October and November, after trending down throughout the year; rents continued to increase, but at well below the double-digit pace experienced through most of 1998. Other Business Activity Regional purchasing managers surveys indicate a mixed performance. New York City area purchasers report that local manufacturing weakened sharply in December; however, they report a further acceleration in activity outside that sector. Upward price pressures for most contracted services moderated in December, though prices paid for computer consultants and temporary help continued to rise sharply; prices paid for other goods and services were little changed. Buffalo purchasing managers report some slowing in the local manufacturing sector in December, led by a steeper than usual seasonal decline in new orders; they also report steady to declining commodity prices. A manufacturing industry specialist in western New York notes that while large employers are still being forced to cut back, most small to mid-size manufacturers 'look fine.' In New York City, tourism remains robust; hotel occupancy rates were slightly lower than a year ago in November but have held steady at an exceptionally high level since August, even after adjusting for seasonal variation. Moreover, average daily room rates are up more than 9 percent from a year ago and continue to rise briskly. Financial Developments According to a survey of senior loan officers at small and medium sized banks in the second district, the demand for commercial loans registered a normal seasonal decline in December, led by the consumer loan category. Refinancing activity remained stable over the past two months. Bankers report continued tightening in credit standards on all categories of loans'especially commercial loans and nonresidential mortgages. No banks eased their credit standards while 18 percent tightened them. Interest rates on both loans (especially non-residential loans) and deposits continued their decline over the last two months. Delinquency rates continued to decrease for all loans, indicating both ongoing improvement in the quality of credit and seasonal factors. Return to top Boston Philadelphia