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Federal Reserve Districts

Second District--New York

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The Second District's economy has expanded at a somewhat slower pace since the last report. Labor market conditions have been little changed in early 2012. Prices remain relatively stable, although business contacts in various industries indicate some increase in cost pressures. Manufacturers report further improvement in general business conditions since the last report. Retailers indicate mixed sales results for early 2012, though auto dealers indicate some slowing. Tourism activity has strengthened somewhat since the last report. Home sales have been steady to slightly softer since the start of the year, but the rental market has continued to improve. Commercial real estate markets have been mixed but slightly improved, on balance. Finance-sector bonuses are reported to be down considerably from last year's levels. Finally, bankers report increased loan demand, some further tightening in credit standards for commercial borrowers, and lower delinquency rates across all categories of loans except home mortgages.

Consumer Spending
Retailers report mixed sales results for January and early February. One retail contact in upstate New York reports strong sales in January, buoyed by continued strong demand from Canadian shoppers. By contrast, another major retail contact indicates some slowdown in sales, with mild weather hampering sales of winter gear in particular. Retailers report that prices continue to be stable overall. Auto dealers in upstate New York report that sales activity slowed in January, despite unseasonably mild weather. Sales of new vehicles were down 3-5 percent from a year earlier, though the weakness was not quite as pronounced as the figures suggest because January 2011 was a particularly strong month for comparison. Inventories and product availability have improved and are no longer much of a factor in restraining sales. Rochester-area dealers report continued strength in used car sales, but dealers in the Buffalo area describe such sales as sluggish. Wholesale and retail credit conditions remain favorable.

Consumer confidence continued to rebound in January. Both the Conference Board's survey of residents of the Middle Atlantic states (NY, NJ, PA), and Siena College's survey of New York State residents show confidence rising for the third straight month and reaching its highest level since last spring. Tourism activity has strengthened since the last report. New York City hotels report that occupancy rates continued to run moderately ahead of a year earlier, with room rates up modestly. After a sluggish December, Broadway theaters report that attendance and revenues surged more than 30 percent above year-earlier levels in January--apparently boosted by a combination of unseasonably mild weather and a larger number of shows now running. Business appears to have remained relatively robust into the first half of February.

Construction and Real Estate
The home sales market has been mixed but, on balance, slightly softer since the last report, while the residential rental market has continued to firm. Northern New Jersey's home sales market has stabilized but has yet to show any significant signs of a pickup; one industry contact surmises that underlying concern about pending foreclosures and their potential impact on the market continues to weigh on potential buyers. Apartment rental markets in New York City and northern New Jersey have continued to strengthen, with effective rents (factoring in the withdrawal of concessions) up 9-10 percent in Manhattan over the past year. However, New York City's co-op and condo market has softened somewhat thus far in 2012: in Manhattan and Brooklyn, apartment prices have held steady but sales volume has tapered off a bit, while in the other boroughs both home prices and volume have edged down. On a somewhat brighter note, real estate contacts in western New York State report continued gradual improvement in home sales activity.

Commercial real estate markets have been mixed but, on balance, somewhat improved since the last report. Office markets in New York City and on Long Island showed some further signs of strengthening in early 2012, with vacancy rates drifting down and asking rents increasing modestly. In contrast, northern New Jersey's market softened further, as vacancy rates rose to new highs, while asking rents drifted down. In Westchester and southwestern Connecticut, asking rents rose, even as office vacancy rates climbed to a multi-year high. Across upstate New York, office markets were mostly steady, though vacancy rates declined in the Albany area.

Other Business Activity
A major New York City employment agency specializing in office jobs reports little change in labor market conditions thus far in 2012; hiring activity and salaries remain flat. Uncertainty about the economic and regulatory outlook is said to be restraining hiring in the financial sector. An authority on New York City's securities industry indicates that Wall Street compensation remains under downward pressure and that bonuses are down 30 percent or more from last year's levels. Manufacturers across New York State report increasingly widespread improvement in business conditions in early 2012 and report steady growth in new orders, shipments and employment. Non-manufacturing contacts report a modest pickup in business activity and employment since the last report; both were reported to be flat during the final months of 2011. Manufacturers continue to report modest increases in both selling prices and prices paid. Non-manufacturing contacts also indicate modest increases in their selling prices but more widespread hikes in prices paid for inputs.

Financial Developments
Small to medium-sized banks report an increase in demand for all loan categories except consumer loans, for which demand was little changed. Bankers report a particularly widespread increase in demand for residential mortgages. Respondents also indicate a continued increase in demand for refinancing. Bankers' responses suggest a tightening of credit standards for commercial mortgages and commercial and industrial loans but no change for the other loan categories. No banker reports an easing of standards in any category. Respondents indicate a decrease in spreads of loan rates over costs of funds for all loan categories. Bankers also note decreases in average deposit rates. Bankers' responses point to steady delinquency rates on home mortgage loans but decreases in delinquencies for all other loan categories.

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Last update: February 29, 2012