November 26, 2003
Federal Reserve Districts
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The Second District's economy has given generally positive signals since the last report, despite some signs of slowing in consumer spending. There has been a further pickup in hiring activity in a number of sectors. Recent business surveys point to further gains in manufacturing activity in recent weeks. Consumer confidence rebounded in October, after declining for a number of months. On the other hand, most retailers report that sales were somewhat below plan in October and early November, partly due to weather.
Both residential construction and the market for existing homes have remained robust. Manhattan office vacancy rates were mixed in October, with some improvement Downtown but an uptick in Midtown. Strong profits and revenues in New York City's financial industry are reportedly driving up bonuses and prompting a pickup in hiring. Finally, bankers report some weakening in demand for consumer and especially home-mortgage loans, but across-the-board declines in delinquency rates.
Consumer confidence rebounded in October, based on two separate surveys. Siena College's monthly survey of New York State residents shows confidence jumping to its highest level in more than a year, led by the New York City metro area, while the Conference Board's confidence index for the Middle Atlantic states (NY, NJ, PA) posted a more moderate rebound.
Construction and Real Estate
Housing permits rose in the third quarter, with a pickup in the single-family segment overshadowing a dip in multifamily permits. Still, year-to-date, multifamily permits are running more than 10 percent ahead of 2002 levels and are on track for the strongest annual performance since 1987. More recently, homebuilders in northern New Jersey report persistent strength in the market through mid-November, with prices continuing to rise, though at a more subdued pace than earlier in the year. One industry contact reports a noticeable pickup in bridge loans, which is attributed to homes taking longer than expected to sell.
Manhattan's office market was mixed in October. Data from a major brokerage show Midtown's vacancy rate rising from 11 percent to 11.9 percent, but Lower Manhattan's rate edging down from 12.9 percent to 12.4 percent. However, asking rents, though still well below a year earlier, rose in both areas. An industry contact notes that Lower Manhattan's market has been helped by soon-to-expire tax incentives for new leases.
Other Business Activity
The manufacturing sector has continued to give positive signals in October and early November, even in terms of employment. Our latest Empire State Manufacturing Survey, conducted in the first half of November, points to further widespread improvement in business conditions, increased employment and little change in input costs or selling prices. Similarly, New York City area purchasing managers report further widespread improvement in the manufacturing sector in October, as well as a pickup in other sectors. Buffalo-area purchasers also report that manufacturing-sector conditions continued to improve in October, with accelerating production activity, steady growth in new orders and modest increases in employment. On the other hand Rochester-area purchasing managers report some softening in manufacturing sector conditions. Reports on input prices were mixed: some escalation was reported from Buffalo, but declines were indicated in Rochester, and little change in the New York City area.
On the supply side, almost all respondents report that credit standards did not change for any type of lending. Interest rates rose for residential and commercial mortgages, but did not change for other loan categories. Most bankers also indicate that average deposit rates remained constant. Finally, delinquency rates decreased noticeably for all categories of loans, with roughly five times as many bankers indicating an overall decrease as an increase.