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 activity in the Second District has held steady since the last report. Prices of finished goods and services have generally been stable. The labor market has shown further signs of softening, as fewer business contacts report that they are adding workers, and a major employment agency describes hiring activity as sluggish. Retailers, including auto dealers, note some leveling off in sales activity following increases. Tourism activity has generally held steady at a high level, though there were some indications of softening in mid-September. Residential real estate markets have shown further signs of improvement. Office markets have shown some signs of slackening, but industrial markets have picked up modestly. Finally, bankers report increased loan demand, except on consumer loans, steady to tighter credit standards, and lower delinquency rates on commercial loans and mortgages.

Consumer Spending

Retailers report that sales activity has remained flat in recent weeks. A major retail chain reports that sales in the region were sluggish in August and especially in September, running well below comparable 2011 levels. Some of the weakness is attributed to unseasonably mild weather, which dampened sales of seasonal merchandise. A major mall in upstate New York describes sales activity as “stagnant”, with sales flat to down slightly from a year ago in August and September. The pricing environment is described as quite promotional, and acquisition costs of goods are characterized as mostly stable to declining modestly. Auto dealers in upstate New York report steady sales activity. New vehicle sales were up 6-9 percent from a year earlier in August but are projected to be flat to up slightly in September. Sales of used cars have been mixed since the last report, while dealers’ service departments note some slowing in business. Wholesale and retail credit conditions remain favorable.

Tourism activity has been steady at a fairly robust level since the last report, despite hints of weakness in mid-September. A trade association survey conducted in September indicated that 70 percent of hoteliers across New York State report that business over Labor Day weekend was at least as good as in 2011. Similarly, occupancy rates and room rates at Buffalo hotels are reported to be running well ahead of 2011 levels. Manhattan hotel occupancy rates were little changed at slightly over 90 percent in August, with room rates continuing to run a modest 2 percent ahead of a year ago. Anecdotal reports for September suggest that business remained strong in the early part of the month but tapered off a bit at mid-month. Similarly, weekly attendance and revenues at Broadway theaters were running ahead of comparable 2011 levels in August and early September but slipped well below year-earlier levels for the third week of the month. Finally, consumer confidence fell in August and was little changed at a low level in September, according to the Conference Board’s monthly survey of residents of the Middle Atlantic states (NY, NJ, Pa).

Construction and Real Estate

Residential real estate across the District has continued to improve. Housing markets in metropolitan Buffalo reportedly flattened out in August but picked up sharply in September. Northern New Jersey’s housing market has shown further modest signs of improvement, and there has been a sustained pickup in rental apartment construction, as builders appear to see a persistent shift toward renting. Home prices across northern New Jersey appear to recovering gradually--an industry expert notes that foreclosures and distress sales are no longer pushing down prices of other properties, though they are dampening any increase. Manhattan’s co-op and condo market has remained stable--both in terms of sales activity and prices. The upper end of the market has been relatively strong, partly fueled by foreign buyers. Market conditions are reported to have strengthened in Brooklyn and especially Queens in the third quarter, while Long Island’s housing market is weak but stabilizing. New York City’s apartment rental market remains robust: rents have decelerated a bit in recent months but are still estimated to be rising at a 6-8 percent annual pace.

Commercial real estate markets showed signs of softening in the third quarter. In particular, office vacancy rates in metropolitan Syracuse, Albany, northern New Jersey, Westchester and Fairfield counties climbed to their highest levels in a number of years, while asking rents were flat to down slightly. Office vacancy rates also edged up in Manhattan, after drifting down over the first half of 2012. Sluggish leasing demand from financial and other firms is reported to be more than offsetting strong leasing demand from tech firms. A substantial amount of office space is scheduled to come onto the Lower Manhattan market in early 2013.

Industrial markets have strengthened: vacancy rates have declined modestly since the beginning of the year in northern New Jersey, Westchester and Fairfield counties, and the Buffalo and Syracuse areas; but rates have held steady in Long Island and metropolitan Rochester. Industrial rents have begun to rise modestly across most of the District for the first time in a number of years.

Other Business Activity

Manufacturers across the District indicate some further softening in general conditions since the last report, whereas contacts in most other sectors report that activity held steady. Both manufacturers and other contacts report little change in input price pressures since the last report, though a number of manufacturing contacts say they plan to hike selling prices in the months ahead.

Labor market conditions across the District have been tepid since the last report. Business contacts generally indicate that they have scaled back hiring activity in recent months, and almost as many business contacts say they plan to reduce as increase employment in the months ahead. A major New York City employment agency specializing in office jobs reports that hiring activity remained sluggish after Labor Day--a time when recruitment activity typically picks up. Moreover, the weakness is reported to be fairly broad-based, though most evident in the finance sector.

Financial Developments

Small to medium sized banks in the District report increased demand for all loan types except consumer loans, where demand was unchanged. Bankers also report increased demand for refinancing. Bankers report some tightening in credit standards for the household sector: roughly one in five bankers report tighter standards for consumer loans and residential mortgages, while no respondent reports easing standard in any individual loan category. Respondents indicate a decrease in spreads of loan rates over costs of funds for all loan categories except for consumer loans. The decrease in spreads was most prevalent in commercial mortgages. Respondents also indicate a decrease in the average deposit rate. Finally, bankers report some decrease in delinquency rates for commercial and industrial loans and commercial mortgages but no change for consumer loans and residential mortgages.

SOURCE: Federal Reserve Board

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