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

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

Economic growth in the Second District has picked up somewhat since the last report. Business contacts continue to report moderate input price pressures but most report their selling prices remain steady. There has been fairly broad-based strengthening in labor market conditions. Retailers report that sales have generally been strong and ahead of plan in March, and auto sales have remained fairly robust. Tourism activity has generally been strong in recent weeks, though Broadway theaters have been in a bit of a slump. Commercial and especially residential real estate markets have strengthened since the last report. Finally, bankers report widespread increases in loan demand, continued narrowing in loan spreads, and further modest declines in delinquency rates.

Consumer Spending Retailers report that sales were generally brisk in March. One major chain reports that samestore sales were ahead of plan--especially in and around New York City--and up modestly from March 2012 levels. A contact in upstate New York also reports that mall sales were brisk in March and up from a year ago, following a tepid performance in February; some of the recent strength is attributed to Canadian shoppers. Inventories are reported to be in good shape, prices are characterized as steady, and no unusual discounting is reported.

Auto dealers in the Buffalo and Rochester areas report that new vehicle sales have remained fairly strong since the last report. February sales were roughly on par with comparable 2012 levels, despite an exceptionally strong performance a year ago; March appears to be shaping up as a solid month as well. Used vehicle sales are reported to have softened a bit, but this is largely attributed to attractive deals in the new car market. Wholesale and retail credit conditions for auto purchases are reported to be in good shape.

Tourism activity has been mostly robust since the last report. Manhattan hotels report continued brisk business in February and March: revenue per room was up nearly 15 percent, driven by a combination of high and rising occupancy rates and escalating room rates. Hotels in the outer boroughs continue to see fairly strong business, partly reflecting ongoing demand from Sandy recovery workers, and also from displaced residents. On the other hand, Broadway theaters report some weakening in both attendance and revenues since mid-February; they have been running below comparable 2012 levels by roughly 8 percent and 4 percent, respectively. Finally, consumer confidence in the region has ebbed somewhat. The Conference Board’s survey of residents of the Middle Atlantic states (NY, NJ, Pa) shows confidence retreating in March after rising in February, and Siena College’s survey of New York State residents shows a similar pattern.

Construction and Real Estate Residential real estate markets in the District have shown increasingly widespread signs of improvement in recent weeks. New York City apartment rents, which had flattened out in the final months of 2012, have accelerated in early 2013 and are reported to be up 6-7 percent from a year ago in Manhattan and by somewhat more in Brooklyn. With respect to the city’s co-op and condo market, a major appraisal firm reports that sales volume has strengthened, while the inventory of apartments for sale is down sharply to one of the lowest levels on record. Most of the new development is at the upper end of the market, while low inventories across the rest of the spectrum have begun to drive up selling prices across New York City, as well as in Westchester County and Long Island. Multiple offers (bidding wars), though hardly the norm, are becoming more frequent across the region. Prime areas of Brooklyn, where market conditions are particularly strong, are reported to be seeing a good deal of commercial-to-residential conversion. Similarly, an expert on northern New Jersey’s housing market reports continued improvement in market conditions: the volume of distressed properties there has been shrinking, with noticeably fewer homes moving into delinquency or foreclosure recently. Still, prices have moved up only modestly, held back by a slow foreclosure process. Buffalo-area Realtors also report strong market fundamentals--declining inventories and fairly rapid price appreciation.

Commercial real estate markets across the District have also shown signs of improvement in the first quarter. Office vacancy rates continued to decline across Manhattan, and asking rents rose-- particularly in the Midtown South area--while vacancy rates edged down and asking rents were little changed in Long Island and northern New Jersey. Office vacancy rates in New York City and Long Island are currently at their lowest levels in a number of years. In contrast, office vacancy rates remain near multi-year highs in northern New Jersey, as well as in Westchester and Fairfield counties; one New Jersey contact describes new construction activity there as “moribund”. In New York City, though, commercial construction activity has been more robust, particularly in Lower Manhattan, reflecting ongoing work on the World Trade Center complex and a new major transit hub and complex. Industrial markets have been mixed: vacancy rates are down and rents up fairly sharply on Long Island, whereas both are little changed at sluggish levels in northern New Jersey, and in Westchester and Fairfield counties.

Other Business Activity Contacts in both manufacturing and other sectors report steady business activity in recent weeks, while they remain broadly optimistic about prospects for 2013. In general, price pressures are reported to be steady and moderate in the manufacturing sector but more widespread among servicesector businesses; a small but growing number of service- sector contacts say they are increasing their selling prices.

There are growing signs of improvement in the job market. In general, more business contacts indicate that they plan to increase than reduce staff in the months ahead. A major employment agency reports that demand for temps remains strong, and that firms are also hiring more full-time workers, as well as transitioning more temps to full-time positions. Qualified job candidates are increasingly hard to find, and more job- seekers are now getting multiple job offers. An employment agency contact reports increased hiring activity from a broad cross-section of industries, including financial services and publishing, which had been sluggish. Another contact in the employment services industry notes particularly strong demand for IT workers. While starting salary offers remain fairly stable in general, employers are reportedly often willing to pay top dollar for tech workers with specialized skills.

Financial Developments Small- to medium-sized banks report an increase in demand for commercial loans and mortgages but little change in demand for consumer loans and residential mortgages. Bankers report an uptick in demand for refinancing. Credit standards are reported to be unchanged across all loan categories. Respondents indicate a decrease in spreads of loan rates over costs of funds for all loan categories--particularly for consumer loans, where roughly one in four bankers reports lower spreads and no respondent reports higher spreads. Respondents also indicate continued decreases in average deposit rates. Finally, bankers report continued modest declines in delinquency rates on all categories of loans.

SOURCE: Federal Reserve Board

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