January 14, 2009
Federal Reserve Districts
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The Second District's economy has weakened somewhat more since the last report, though some sectors appear to have stabilized to varying degrees. The labor market has shown further signs of deteriorating, particularly in New York City. Retailers generally report that holiday-season sales were somewhat lower than in 2007 and a bit weaker than anticipated; retail prices were flat to down modestly, while retail inventories were at or near desired levels. Tourism activity in New York City slowed further in November and December. Both residential and commercial real estate markets were mixed since the last report, with New York City weakening more than other areas. The financial sector has weakened further, and sizable declines in both employment and compensation are anticipated in 2009. Finally, bankers report declining loan demand across all categories, continued widespread tightening in credit standards, and higher delinquency rates--especially on loans to the household sector.
Consumer confidence was generally at or near record lows in November and December: After hitting a record low in November, Siena College's monthly survey of New York State residents showed consumer confidence edging up in December, while the Conference Board reports that consumer confidence among residents of the Middle Atlantic states (NY, NJ Pa) dropped to its lowest level on record in December.
Tourism activity in New York City has shown further signs of weakening since the last report. Both occupancy rates and room rates at Manhattan hotels tumbled in November and remained weak in December, pushing overall revenues down nearly 20 percent from a year earlier. Broadway theaters also report further weakening in business: attendance in December was down roughly 7 percent from a year earlier, while revenues fell 2½ percent; moreover declines were increasingly steep toward the end of the month. Further declines are anticipated, as nine Broadway shows closed just this past weekend and another four plan to wind up their runs by the end of January--an unusually weak start to a new year.
Construction and Real Estate
New York State Realtors report that home sales continued to weaken in November, falling nearly 24 percent from a year earlier and that median selling prices posted double-digit percentage declines in and around New York City but were mixed across upstate New York. There appears to have been substantial deterioration in Manhattan's housing market, based on reports from both a major appraisal firm and a large real estate brokerage. Co-op and condo sales fell roughly 9 percent from a year earlier in the fourth quarter, led by a 25 percent drop in sales of existing apartments (re-sales). In contrast, closings of newly-constructed units surged 35 percent from a year earlier, but these largely comprised contracts negotiated in late 2007 and early 2008. Based on current contracts, overall apartment prices fell by 20 percent or more from the third to the fourth quarter and the number of transactions fell sharply. Manhattan's apartment rental market has also weakened substantially, with asking rents reported to be down across the board in November, and 2 to 6 percent lower than in June; moreover, an industry report maintains that the reported decline in asking rents likely understates the true weakness in the market, with a growing number of landlords offering concessions. The inventory of available rental units reportedly increased 17 percent between September and November, with a particularly large rise in the number of high-end listings.
Office markets in the District were mixed in the fourth quarter. Manhattan's office vacancy rate climbed to its highest level in two years, while asking rents fell 8 percent from the third quarter and were down 5 percent from a year earlier. An industry contact notes marked weakening in December, in particular. However, office markets in the outlying areas were steady: Vacancy rates in northern New Jersey, Westchester and Fairfield County (CT) were little changed at high levels, while Long Island's rate fell to a two-year low; asking rents were little changed from a year ago in all these areas. Office markets in upstate New York metro areas were steady to somewhat stronger in the fourth quarter, with vacancy rates down slightly and rents up modestly overall.
Other Business Activity
More generally, labor market conditions remain very weak. Both manufacturing and non-manufacturing firms in the District report that they expect employment to decline over the course of 2009, by an average of roughly 2 percent. The overall number of layoffs is expected to be significantly greater in 2009 than in 2008, particularly among non-manufacturing firms. While fewer workers are expected to quit this year than last, somewhat more are expected to retire. Separately, a major New York City employment agency, specializing in office jobs, reports that activity has been very quiet in recent weeks, though the environment is difficult to gauge during this typically slow hiring season; however, a further large increase is noted in the number of people looking for jobs--in particular, people recently let go from financial firms, notably hedge funds.