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

July 18, 2012

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


Growth in the Second District’s economy has slowed since the last report, though labor market conditions have continued to improve. Price pressures have receded further in both manufacturing and other industry sectors, and retail prices have been stable. Non-manufacturing contacts generally report that conditions have held steady in recent weeks, while manufacturers report flat to weaker activity. Retailers generally report weaker results for May and June, but auto dealers indicate that sales activity was fairly robust; tourism activity has continued to be steady and strong. Home sales markets have shown signs of improvement, while rental markets have remained firm; however, commercial real estate markets have slowed modestly. Finally, bankers report a leveling off in loan demand, no change in credit standards, and further declines in delinquency rates on commercial loans and mortgages.

Consumer Spending

Retailers report that sales activity has been somewhat softer since the last report. One major retail chain indicates that sales were down noticeably from a year earlier, with home goods sales especially weak. Another major chain reports that sales slowed in June and were running somewhat below plan but still up marginally from a year earlier; however, some improvement was noted during the first few days of July. Retail contacts in upstate New York report that sales were mixed in May but picked up in June, again buoyed by Canadian shoppers. Retail prices continue to be described as steady. Inventories are generally said to be at or slightly above desired levels.

Auto dealers in upstate New York report positive results. Sales of new vehicles were up noticeably from a year ago in May and are projected to be up modestly in June. Leasing activity and business at dealers’ service departments have been robust since the last report. Dealers also report strong sales and elevated prices for used vehicles. Wholesale and retail credit conditions remain favorable, though one contact reports that banks have reined in lending for used vehicles. Tourism activity has remained robust since the last report. New York City hotels indicate that revenues per room were up 6-7 percent from a year ago in May and that very preliminary figures for June suggest similar gains. This gain reflects increased occupancy rates, which have been running above 90 percent, as well as 3-4 percent increases in average room rates. Attendance at Broadway theatres was generally steady in May and June and up slightly from a year earlier, while revenue was up more than 10 percent, due to rising ticket prices.

Construction and Real Estate

Housing markets across much of the District have improved somewhat since the last report, while rental markets have continued to strengthen. Both the volume of Manhattan apartment sales and selling prices were steady in the second quarter; sales of smaller apartments have picked up and account for a growing share of the market. Foreign buyers continue to be a fairly big component of demand at the higher end of New York City’s market. Housing markets in Long Island and Westchester County are reported to have improved in the second quarter: sales activity has picked up, prices have stabilized, and the inventory of available homes, though high, has begun to decline. Existing home sales and prices in northern New Jersey have been flat, hampered by a glut of distressed properties on the market; but there has been a modest pickup in new home sales, as well as construction starts. Real estate contacts in Western New York continue to report robust sales activity and rising prices, despite “tough” mortgage conditions. New York City’s apartment rental market continued to strengthen in the second quarter, with inventories tight and rents increasing--most notably on smaller and lower priced apartments.

Commercial real estate markets in and around New York City have shown some signs of softening since the last report. Office vacancy rates in Manhattan, though steady for the second quarter overall, rose in June; new leasing activity slowed, as renewals have accounted for a growing share of leases. A major brokerage firm notes strong demand from tech firms--largely in Manhattan’s Midtown South district--but sluggish demand from the financial sector. Office vacancy rates in the areas around Manhattan--Long Island, Westchester, and northern New Jersey--edged up in the 2nd quarter. Retail vacancy rates in New York City and northern New Jersey rose slightly in the second quarter. Industrial vacancy rates also edged up in most markets.

Other Business Activity

Contacts across the District indicate that business activity has leveled off since the last report. Business contacts in both manufacturing and other sectors indicate little change in general conditions, but manufacturing contacts in New York State report a pullback in both new and unfilled orders. In addition, business contacts in manufacturing and other sectors note a leveling off in input prices and steady to declining selling prices.

Still, labor market conditions across the District have been steady to slightly improved since the last report. Both manufacturers and business contacts in other sectors say that they are adding workers, on net. A major New York City employment agency specializing in office jobs reports that hiring activity remains fairly subdued and is little changed from the spring; however, this contact also notes that the pool of qualified workers is limited and appears to be dwindling gradually. Similarly, a trucking industry contact notes that firms are having a difficult time finding qualified drivers.

Financial Developments

Responses from small- to medium-sized banks in the District suggest no change in loan demand overall. For specific loan categories, bankers report increased demand for home mortgage loans, but decreased demand for commercial & industrial loans. Bankers also indicate steady to increasing demand for refinancing. The vast majority of contacts report no change in credit standards across all loan categories. Respondents indicate continued decreases in spreads of loan rates over costs of funds for all loan categories--particularly commercial & industrial loans and commercial mortgages. Respondents also note increasingly widespread declines in the average deposit rate. Finally, bankers report a decrease in delinquency rates on commercial loans and mortgages but steady rates on loans to the household sector.

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