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U.S. Federal Reserve Beige Book: New York District (Text)

June 06, 2012

The following is the text of the Federal Reserve Board’s Second District-- New York.


The Second District’s economy has continued to expand at a moderate pace since the last report. Labor market conditions have generally improved, and, on balance, contacts indicate they plan to add workers in the months ahead. Business contacts in a number of industries note a slowing pace of cost increases and mostly stable selling prices. Manufacturers report a pickup in business conditions. Tourism activity has been strong since the last report, while retailers and auto dealers indicate steady sales activity in April and May. Home sales activity has continued to increase gradually since the last report, though prices have generally been steady to somewhat lower. Rental markets remain strong, with rents rising due to tight inventory levels. New York City’s commercial real estate market has tightened slightly. Finally, bankers report widespread increases in loan demand, no change in credit standards, and continued broad-based declines in delinquency rates.

Consumer Spending

Retailers report that sales activity was mixed but generally steady in April and the first few weeks of May. One major retail chain reports that sales were running on plan and up modestly from a year earlier, with particular strength in home-related goods. However, another chain indicates that sales were slightly below plan and down considerably from this time last year, with weakness in home goods and fine jewelry. In general, New York City stores tended to outperform other stores in the District. Retail contacts in upstate New York report that sales in recent weeks have been brisk and on par with a year earlier, and note increased demand from Canadian shoppers. Retail prices continue to be mostly stable, though price declines are anticipated for fall-season apparel, due to the retreat in cotton prices. Inventory levels are well managed, and are reported to be at desired levels.

Auto dealers in upstate New York report that sales remained fairly brisk since the last report. Sales of new vehicles were up modestly from a year earlier in April and are seen remaining steady in May. Product availability is no longer a drag on sales, except for some of the most popular models. The used car market continues to be strong and prices remain elevated, although dealers in the Buffalo area note some recent softening in prices at auction. Wholesale and retail credit conditions remain favorable and continue to improve.

Tourism activity has been quite robust since the last report. New York City hotels indicate that revenues were up roughly 10 percent from a year ago in April and May. This increase reflects both higher room rates and higher occupancy rates. Hotel bookings have been fairly broad based, but an industry contact notes that there has been a noticeable pickup in business travelers in recent months. Moreover, ticket prices and attendance at Broadway theaters increased in April and May; as a result, theater revenues were up considerably from a year ago.

Construction and Real Estate

Housing markets across much of the District have been mixed but, on balance, stable since the last report, while rental markets have continued to firm. The volume of apartment sales in New York City has been generally steady, with brisk activity at the top and bottom segments of the market but activity in the middle described as quiet. Home sales in northern New Jersey have continued to improve from a low level, but mainly due to a pickup in sales of distressed properties. Home prices in and around New York City are characterized as steady to declining slightly, in part because more distressed properties are coming to market. By contrast, real estate contacts in Western New York report robust sales activity and rising prices in recent months. Apartment rental markets in both New York City and northern New Jersey continue to firm, with tight inventories and rents continuing to rise. A major New York City appraisal firm notes that rising rents in the City continue to make buying more attractive, and credits this trend for the recent uptick in sales in the lower third of the market. Conditions in the outer boroughs have been somewhat softer than in Manhattan.

New York City’s office market has tightened slightly since the last report, although leasing activity has slowed in recent months. Office vacancy rates have edged down and rents have risen 7-8 percent from a year ago. However, a major commercial brokerage firm notes that demand for office space from the finance industry has softened considerably since earlier in the year. Some of this recent softening has been offset by strong demand by technology firms, especially in the Midtown South area. There also continues to be a fair degree of leasing activity from businesses in the media, information, and legal sectors. Commercial property sales activity remains slow. There is a moderate amount of new office development underway, but most of it will not come on-line for another 12-18 months. In addition, a hospitality industry contact notes that interest in luxury hotel development in Manhattan has increased recently.

Other Business Activity

Contacts across the District, on balance, indicate that business activity has expanded since the last report. Manufacturers across New York State report a noticeable improvement in business conditions and a growing proportion of non- manufacturing contacts report increases in business activity. In addition, business contacts in manufacturing and other sectors note a slower pace of input price increases and steady to somewhat higher selling prices.

On balance, labor market conditions have continued to improve across the District since the last report. Moreover, both manufacturers and business contacts in other sectors say that they plan to increase hiring activity in the months ahead. However, a major New York City employment agency specializing in office jobs reports that hiring activity has been mixed since the last report, with bouts of starts and stops in hiring and some reluctance by firms--particularly in the finance sector--to commit to hiring new employees. Moreover, fewer job openings are available in part because the amount of job churn is still much less than normal. A financial industry contact reports that previously-announced major layoffs at large banks in the New York City area are ongoing and expected to continue.

Financial Developments

Small to medium-sized banks in the District report increased loan demand in all categories to a more widespread degree than at any time since the mid 1990s. The increase in demand was most prevalent for commercial loans and mortgages. Bankers also indicate increased demand for refinancing but to a lesser extent than in recent months. Credit standards are reported to be little changed across all loan categories. Respondents note a decrease in spreads of loan rates over the cost of funds for all loan categories--particularly for commercial mortgages where over three in five bankers report lower spreads. Respondents also indicate some decline in average deposit rates. Finally, bankers again report widespread decreases in delinquency rates for all loan categories.

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