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Federal Reserve Districts

Second District--New York

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The Second District's economy has softened since the last report. Manufacturers report substantial weakening in business activity as of mid-February. Port activity is also reported to be weaker, while, more generally, contacts outside the manufacturing sector report deterioration in business activity and a pullback in hiring. Retailers indicate that sales have been below plan thus far in 2008, though inventories are reported to be at satisfactory levels. Tourism activity in New York City has shown some signs of slowing in recent weeks but remains strong. Housing markets continue to be sluggish, though Manhattan's co-op and condo market has shown some resilience. Manhattan's office market remains tight, but vacancy rates have edged up and rents have decelerated. Finally, bankers report some continued weakening in demand for new loans but a pickup in refinancing activity; respondents also report ongoing tightening in credit standards and rising delinquency rates, particularly on non-residential mortgages.

Consumer Spending
Retailers report weak sales results for January and, to a lesser extent, for the first half of February. Overall, sales were characterized as below plan and down from a year ago. One chain reports sales of women's apparel as particularly sluggish, while another describes big-ticket home goods as the weakest category. Consumer surveys point to increased pessimism: Siena College's survey of New York State residents shows consumer confidence falling for the fourth straight month and reaching a new cyclical low in January, while the Conference Board's survey of Middle Atlantic residents shows confidence holding steady at a more than 2-year low in January, after falling precipitously in late 2007.

Tourism activity in New York City slowed a bit in early 2008 but was still at a high level. Hotel occupancy rates were reported to be roughly on par with a year earlier in January and early February; prices and total revenues decelerated slightly but were still up 10-12 percent from a year earlier. Broadway theaters report that attendance has been fairly strong in January and early February, rising 3-4 percent from a year earlier; however, total revenues were up just 1 percent, reflecting a decline in the average effective ticket price.

Construction and Real Estate
New York City's office market showed some signs of slackening in January, with some slowing in leasing activity. Manhattan's office vacancy rate rose modestly to 7.6 percent in January, about equal to a year earlier. Asking rents were little changed from year-end 2007 levels and were up more than 20 percent from a year earlier. Office purchase markets across the District have been mixed: sales prices and transactions volumes showed continued strength across most of the New York City area, as well as Albany and Buffalo, but were less robust in northern New Jersey and metropolitan Rochester. The market for industrial properties has shown more widespread weakness across the region.

Housing markets in the District have generally weakened since the last report. New Jersey's housing market is reported to have seen a decline in transactions, with large gaps between asking prices and offers. The inventory of available units remains high but has retreated somewhat, as some sellers have taken their homes off the market. Builders have curtailed most new construction projects; one industry expert cites as a major problem the fact that prices for redevelopment land have not come down in line with home prices.

Manhattan's co-op and condo market is reported to have remained fairly stable in early 2008, with transaction activity roughly on par with a year ago, and prices up by about 5 percent. There was a normal seasonal increase in the inventory of units on the market in January.

Other Business Activity
A major NYC employment agency, specializing in office jobs, reports that hiring activity slowed noticeably in January but picked up in early February and was almost on par with a year earlier. Despite widely announced layoff plans at financial firms, this firm reports no noticeable increase in the number of available job candidates. Large financial firms are reported to be hiring only sporadically but hedge funds and private equity firms are still hiring at a good pace.

New York State manufacturers report that business activity weakened noticeably in January and early February, while employment weakened moderately. Firms also report more widespread increases in prices paid than in well over a year. More than two in five manufacturing contacts indicate that their customers have become slower in paying their bills in recent months, and more than one in five say that they have grown slower in paying their vendors. Port of New York import traffic has reportedly slowed noticeably in early 2008. More generally, non-manufacturing firms in the District report widespread weakening in both general business activity and net hiring activity in January and early February. Firms have also scaled back capital spending plans somewhat.

Financial Developments
Bankers report lower demand for all types of loans--most notably in the residential mortgage category, though to a lesser degree than in January. However, for the first time in more than four years, bankers report an increase in refinancing activity. For all loan categories, respondents indicated a tightening of credit standards, with close to a quarter of bankers reporting higher standards in each category; no bankers report eased standards for any type of loan. Bankers indicate no change, on balance, in the spreads of loan rates over cost of funds--a sizable proportion of respondents reported increases and decreases in each category, but the responses were evenly split. Bankers also report a widespread decrease in the average deposit rate. Finally, respondents indicated a rise in delinquencies in all loan categories except residential mortgages, where bankers indicated no change in delinquencies.

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Last update: March 5, 2008