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Federal Reserve Districts

Second District--New York

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The Second District's economy has been generally weaker since the last report.  Manufacturers report that business activity remained sluggish in May, while cost pressures have been increasingly widespread.  Contacts at non-manufacturing firms, in general, report continued deterioration in business conditions and anticipate little improvement in the months ahead.  A major employment agency notes recent weakening in hiring activity and some general slackening in the labor markets.  Retailers indicate mixed results for April and May; sales are said to be close to plan on average. 

Tourism activity in New York City has shown some signs of softening since the last report.  Housing markets weakened further, with sales activity down and prices flat to lower.   New York City's office market continued to soften in April and May--while leasing activity has remained moderately brisk, vacancy rates have continued to rise. Finally, bankers report some steadying in loan demand, further tightening in credit standards, and continued increases in delinquency rates across all loan categories.

Consumer Spending
Retailers report that sales were mixed in April and May; on average, sales were relatively close to plan and little changed from a year ago.  As has been the case in recent months, sales were reported to be particularly strong in New York City.  Inventories are mixed--one large chain notes they are at desired levels but another reports a sizable overhang.  Retail selling prices are reported to have remained steady since the last report, though with somewhat more aggressive discounting; one major chain anticipates a sizable increase in apparel prices in the upcoming season, based on higher acquisition costs.

Consumer surveys indicate further deterioration in confidence: the Conference Board's survey of Middle Atlantic state residents (NY, NJ, Pa) shows consumer confidence declining for the eighth consecutive month in May, falling to a nearly 15-year low.  Tourism activity in New York City has shown some signs of softening since the last report.  While Manhattan's hotel occupancy rate remained close to 90 percent in April, room rates were up by 7½ percent from a year earlier, and total revenues were up 6 percent; these are the smallest 12-month increases in more than two years.  More recently, Broadway theaters report that both attendance and revenues were down more than 10 percent from a year ago in April; they recovered somewhat in May but were still down roughly 3 percent from a year earlier. 

Construction and Real Estate
Housing markets in the District have shown further signs of weakening.  Sales transactions for Manhattan co-ops and condos are reported to have been down sharply from a year earlier in April and May, while inventories of unsold units have risen by much more than the seasonal norm since the beginning of the year.  A leading appraisal firm reports that average and median selling prices have been buoyed by a skew in volume toward the high end, with prices of comparable units flat to lower than a year ago.  Sales activity in the outer boroughs is also reported to be down sharply from a year earlier.  One industry contact says that he has heard of quite a few deals falling through due to difficulties in obtaining financing. 

Separately, an expert in New Jersey's homebuilding industry notes that the market for new homes is being hampered by ongoing weakness in the resale market, where sales activity remains at low levels and prices are down more than 10 percent from a year ago.  However, builders are reported to have worked through much of their inventory overhang and are no longer offering aggressive discounts, but they are still offering concessions. 

Commercial real estate markets in the region have shown further signs of slackening since the last report.  While Manhattan's office market is still fairly active in terms of leasing activity and renewals, office vacancy rates continued to rise in May--particularly on Class A properties.  A sizable amount of available space is coming onto the market, largely from financial firms.  This has bolstered average asking rents, as the mix of available space has become more weighted toward the high end: asking rents are up roughly 10 percent from a year ago, but this is well below the 20 to 30 percent appreciation seen in 2007.  The sales market for office properties is reported to be especially weak, with prices estimated to be down 15 to 20 percent from a year earlier.  New Jersey's office rental and sales markets are also reported to be increasingly soft, with a fair amount of new development said to be in the pipeline.  

Other Business Activity
A major New York City employment agency notes that hiring activity has weakened noticeably in May, though the final week of the month did see a slight pickup.  This contact also indicates a noticeable increase in job candidates recently laid off from the securities industry.  Small financial firms are reported to be hiring sporadically, but the major Wall Street firms are reported to be hiring very little or not at all.  Legal firms have also pulled back on hiring, apparently reflecting diminished financial sector business.  Starting salaries are reported to be little changed from a year ago; in general, firms are making somewhat lower offers on average, because a larger proportion of job applicants are currently out of work.

New York State manufacturers report that business activity remained sluggish in May; contacts again report increasingly widespread hikes in prices paid but only moderate increases in selling prices.  Non-manufacturing contacts, in general, report continued widespread weakening in business conditions and widespread cost pressures but steady employment levels. 

Financial Developments
Bankers report little change in loan demand in any loan category or in refinancing activity. Respondents indicate continued tightening of credit standards across all loan categories, most evidently in the commercial mortgage category.  No bankers report eased standards for any type of loan.  Respondents note an increase in the spreads of loan rates over cost of funds in all loan categories, especially in commercial and industrial loans.  Bankers also report a decrease in average deposit rates.  Finally, respondents indicate a rise in delinquencies in all loan categories, but most notably on consumer loans. 

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Last update: June 11, 2008