The following is the text of the Federal Reserve Board’s Second District-- New York.
SECOND DISTRICT--NEW YORK Economic activity in the Second District has weakened since the last report, largely reflecting widespread disruptions from Sandy. Prices of finished goods and services have generally been stable. The labor market is difficult to gauge at this point-- while hiring activity tapered off noticeably due to the storm, relatively few business contacts indicate that they plan to reduce headcounts in the months ahead. Retailers report fairly strong sales for October but indicate that business in the last two weeks has been severely hampered by storm disruptions; auto dealers in upstate New York report some softening in auto sales in October. Tourism activity in New York City was fairly strong prior to the storm; hotel business tapered off only modestly in early November, as the adverse effects of travel cancellations were partly offset by increased demand from local residents without power or access to their homes. Residential real estate markets were generally firm through the latter part of October, though the storm has caused a substantial slowing in sales activity in and around New York City. Finally, bankers report some weakening in loan demand and increased delinquency rates in the consumer and commercial & industrial loan segments; for residential and commercial mortgages, both loan demand and delinquency rates are little changed.
Retail sales are reported to have been ahead of plan in October but exceptionally weak in early November in the New York City area, mainly due to widespread power outages, store closings and accessibility problems for both customers and workers. With the holiday sales season coming up--and with many residents in the region needing to replace destroyed or damaged property--all the lost sales are expected to be made up in the weeks ahead. One major chain reports that it is hiring more holiday-season staff than in 2011. The pricing environment is described as stable. Auto dealers in upstate New York report some flattening out in sales in October, though used car sales reportedly remain fairly robust. There has also been some softening in business at dealers’ service departments. Wholesale and retail credit conditions remain favorable.
Tourism activity in New York City was mixed in October but dropped off noticeably following the late-October storm. Hotels across much of lower Manhattan lost business in late October and early November, when they were without power for a number of days. Overall revenue for Manhattan hotels slumped nearly 10 percent below 2011 levels during the week of the storm but bounced back in the subsequent week. The New York City marathon, although cancelled at the last minute, likely brought large numbers of visitors to the city during the first weekend in November. Attendance and revenues at Broadway theaters, which had already weakened modestly in October, fell sharply during the week of the storm; attendance rebounded modestly in the second week of November but remained roughly 15 percent below last year’s level. Finally, consumer confidence in the region climbed to its highest level in well over a year in October (prior to the storm), based on 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.
Construction and Real Estate
Residential real estate markets in the District were mixed but generally firm prior to the storm, and its effects on the market remain unclear at this point. Manhattan’s rental market remained on a positive trajectory in October, with rents up roughly 5 percent from a year earlier and vacancy rates continuing to decrease. Sales markets in both Manhattan and the outer boroughs were fairly active in October, with prices steady and the inventory of available homes characterized as low. On the other hand, housing markets in the Buffalo area showed signs of softening in October. An expert on New Jersey’s housing sector notes that conditions were improving gradually prior to Sandy and expects that post-storm rebuilding will boost multi-family construction.
The storm caused a noticeable slowdown in sales activity throughout the New York City metropolitan region, but this is expected to be temporary. With many homes along the New York City, Long Island and New Jersey shorelines severely damaged or destroyed, the lean housing inventory is a concern, as displaced residents seek short-term rentals. There is some concern as to how much of the shore communities will be rebuilt and how quickly, but one industry expert anticipates that residents in the severely-damaged areas will be strongly motivated to return and rebuild. Some of the biggest potential challenges are likely to be shortages of construction equipment and materials, and steeper prices for insurance. Commercial real estate markets were mixed prior to the storm. A number of large office buildings in lower Manhattan remain out of commission due to extensive flooding; however, a major brokerage contact indicates that displaced businesses do not seem to have had much trouble finding temporary quarters. Overall market conditions are not reported to have changed much, thus far, since the storm-- between the end of September and mid-November, asking rents have risen modestly in Manhattan but declined modestly in northern New Jersey. Office markets across upstate New York, which was not directly affected by the storm, have shown some signs of softening in recent weeks.
Other Business Activity
Manufacturers across the District indicate continued weakness in general conditions since the last report; virtually all contacts in the New York City area report some loss in business due to storm-related disruptions. Manufacturers in upstate New York, which was not significantly affected by Sandy directly, reported only scattered and indirect effects from the storm, though these contacts also report some further weakening in business conditions.
Business contacts throughout the southern part of the District-- in both manufacturing and other sectors--report widespread effects of the storm, particularly in northern New Jersey and on Long Island. In these parts of the District, many businesses indicate that the impact has been both severe and protracted, due to prolonged power and communications outages, as well as transportation disruptions that have prevented both workers and customers from accessing the business. A trucking industry expert notes that many terminals and warehouses sustained severe flooding, which has disrupted business; at least one firm has gone out of business as a result. Business contacts in both manufacturing and other sectors report steady input price pressures and little change in selling prices.
Labor market conditions have weakened, probably temporarily, in the aftermath of Sandy. A major New York City employment agency specializing in office jobs reports a sharp drop-off in business after the storm, because many firms either shut down or operated without key personnel. Separately, a growing number of manufacturing contacts--not only in the New York City area but also in upstate New York--report declines in employment at their firms. However, businesses in other sectors report little or no change in employment. Contacts in both manufacturing and other sectors expect headcounts to remain steady, on net, over the next six months.
Small- to medium-sized banks across the District report weaker demand for consumer and especially commercial & industrial loans but steady demand for commercial and residential mortgages. Bankers report increased demand for refinancing. Respondents do not report any change in credit standards in any loan category. Bankers indicate a decrease in spreads of loan rates over costs of funds for all loan categories--particularly commercial mortgages. Respondents also indicate decreases in average deposit interest rates: nearly two in five bankers report a decrease while none reports an increase. Bankers note increased delinquency rates for consumer loans and commercial & industrial loans but no change in delinquency rates for residential or commercial mortgages.
When asked what effects Sandy had on their business, almost half of the bankers report no noticeable effect so far; however, many of these respondents expect that effects of the storm could become evident in the future, especially for commercial businesses and as damage to collateral is assessed. On the other hand, more than 40 percent of those surveyed were affected directly by the storm, with widespread branch closings and power outages reported. Banks in the most severely affected areas-- largely New Jersey, as well as lower Manhattan and Queens--have received a high volume of calls from customers with home damage, and banks are physically inspecting buildings for damage before making new loans.
SOURCE: Federal Reserve Board