April 25, 2007
Federal Reserve Districts
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Economic activity in the Second District has grown steadily since the last report. Consumer prices remain relatively stable, despite some signs of acceleration in input prices and wages. Labor markets appear to have firmed, with reports of a pickup in hiring activity. Retailers indicate that sales were generally ahead of plan in March and early April and that selling prices remained steady. Tourism activity has shown signs of picking up since the last report. Two regional consumer surveys show confidence at high levels, despite retreating modestly in March.
Manufacturers report that activity slowed in March and early April and that profit margins are being squeezed by rising input prices. Housing markets continue to be mixed: prices have edged down and are generally on par with or moderately below year ago levels; however, apartment sales activity has picked up in New York City. Manhattan's office market tightened further in the first quarter, with asking rents up more than 20 percent from a year earlier, while suburban markets have strengthened modestly overall. Finally, bankers report further weakening in loan demand, slightly tighter credit standards, and a modest increase in delinquency rates on commercial and industrial loans.Consumer Spending
Retailers report that sales were generally ahead of plan in March and early April, despite unseasonably cold and wet weather, including a mid-March storm. Buoyed partly by an earlier Easter, same-store sales were reported to be up 8 to 9 percent from a year earlier, with particular strength noted at New York City stores. Sales of apparel and accessories were described as robust, whereas sales of home goods continued to be characterized as soft. Overall, inventories are reported to be at favorable levels, while selling prices are said to be flat to up modestly.
Tourism activity in the District has shown increased strength since the last report. Preliminary March reports from Manhattan hotels show occupancy rates rising above already-strong February levels and room rates soaring roughly 15 percent above comparable 2006 levels. Broadway theaters also report a brisk pickup in business starting in late February and continuing into early April: over this period, both attendance and total revenues are reported to be up roughly 12 percent from a year earlier, compared with increases of roughly 6 percent in January and early February. Average theater ticket prices have leveled off, after sizable increases in 2006. Hotel occupancy rates in the Buffalo-Niagara Falls and Albany-Saratoga areas are reported to be up noticeably in early 2007 compared with a year earlier. Two regional surveys indicate a pullback in consumer confidence, though current levels remain relatively high. Siena College's survey of New York State residents showed confidence retreating in March, after climbing to a 6-year high in February. The Conference Board's March survey of Middle Atlantic residents also showed overall confidence retreating modestly from a high level.Construction and Real Estate
The commercial real estate market in metropolitan New York City remained robust in the first quarter. Manhattan office vacancy rates slipped to their lowest levels since 2001 and asking rents were up 20 to 30 percent from a year ago. In addition, the sales market for Manhattan office properties is described as exceptionally strong. Most suburban office markets tightened slightly in the first quarter: in Westchester and Fairfield Counties and on Long Island, vacancy rates edged down and rents rose roughly 5 percent from a year earlier; however, northern New Jersey's vacancy rate edged up above 17 percent, while rents rose 3 percent.
Housing markets continue to be mixed. New York State Realtors report that statewide sales activity in early 2007 has been moderately lower than a year earlier, while the median sales price was virtually unchanged. A northern New Jersey real estate contact notes that, while many high-end homes (over $1.5 million) have languished on the market, there are pockets of strength for more moderately priced homes. A contact in New Jersey's homebuilding industry notes that, while homes priced at under $300,000 have been selling well, the overall market remains soft; new home prices are reported to be down from a year ago, and cancellation rates are said to be high, particularly in active-adult (retirement) communities. Finally, Manhattan's co-op and condo market continued to show resilience in the first quarter: sales activity rose sharply, and the inventory of listings, though still fairly high, continued to decline. However, selling prices for apartments, which had risen moderately throughout 2006 were reported to be virtually unchanged from a year earlier.Other Business Activity
A major NYC employment agency indicates that hiring activity picked up in March and early April, after a lull in the first two months of the year. The main factor restraining hiring activity is reported to be a shortage of job candidates. Salary offers are estimated to be up roughly 5 percent from a year earlier, on average, though candidates are often able to negotiate upwards. More broadly, non-manufacturing firms in the District report continued moderate expansion in general business activity, increased hiring plans and continued widespread wage increases in early April.
In contrast, New York State manufacturers report little or no growth in business activity in March and early April, following a strong February, and indicate some slowing in hiring activity, though their expectations about the near term outlook remain generally positive. Firms also note some acceleration in prices paid but report less widespread increases in prices received than in recent months, suggesting some downward pressure on profit margins.Financial Developments
Bankers at small to medium-sized banks in the District reported weaker demand for all types of loans since the last report-particularly in the commercial mortgage loan category, where close to half of bankers report declines in demand and just 15 percent reported increases. Respondents also continue to report decreased refinancing activity. Bankers indicate steady to slightly tighter credit standards in all loan categories. Respondents report modest declines in rates on both residential and nonresidential mortgages. There was no reported change in average deposit rates. Finally, bankers indicate a moderate rise in delinquency rates on commercial and industrial loans but no significant change in other categories.