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 shown signs of rebounding since the last report, as widespread disruptions from Superstorm Sandy largely dissipated. On balance, the labor market firmed, with manufacturers reporting flat employment but non-manufacturing contacts indicating some pickup in hiring. Manufacturers and other firms report more widespread price hikes than in recent months, while retail prices were steady to up moderately. Retailers report that holiday-season sales were steady to somewhat higher than this time last year but slightly below plan. Auto sales in upstate New York were mixed but generally strong in November and December. Tourism activity slumped in November, in the aftermath of Sandy, but rebounded somewhat in New York City in December. Both residential and commercial real estate markets were generally steady since the last report. Finally, bankers report a pickup in demand for commercial mortgages but steady demand on other types of loans; they also report no change in credit standards, narrowing loan spreads, and widespread decreases in delinquency rates.

Consumer Spending

Holiday season sales were up modestly from last year but came in slightly below plan. A trade association survey of retailers across New York State indicates that sales were disappointing in the days leading up to Christmas as well as in the days after. A major retail chain indicates that sales were below plan in November and December but picked up fairly dramatically in early January. Retail contacts in upstate New York report that sales were flat to up compared to a year earlier. Retailers attribute the weaker than expected holiday sales to a combination of online shopping, mild weather, fiscal cliff concerns, and, in some parts of the region, slow insurance payouts to those affected by Sandy. Retail prices were reported to be steady or up moderately.

Buffalo-area auto dealers indicate that vehicle sales picked up in November but were expected to be flat to slightly lower than a year earlier in December. However, Rochester-area dealers report strong sales for both months to end 2012. Tourism activity slumped in the immediate aftermath of Sandy. Even hotels in the Albany area were reportedly affected by the storm, as widespread meeting and conference cancellations pushed down hotel occupancy rates in November. In New York City, Broadway theaters report that attendance and revenues rebounded after a deep post-Sandy slump in the first half of November. Still, December attendance was down 5 to10 percent from a year earlier, while revenues were little changed. Finally, consumer confidence in the region weakened at year end. The Conference Board’s survey of residents of the Middle Atlantic states (NY, NJ, Pa) showed confidence falling to its lowest level in more than a year, while Siena College’s survey of New York State residents indicated a modest decline.

Construction and Real Estate

Residential real estate markets in the District were generally steady since the last report, with the storm having little discernible effect on the overall market. New York City’s rental market appears to have lost some momentum during the final two months of 2012, as rents in Manhattan and Brooklyn retreated and were up only slightly from a year earlier. The inventory of available rental apartments, however, remained low in late 2012. Apartment sales activity in New York City was robust in the fourth quarter--particularly in Manhattan. A major appraisal firm attributes some of the high sales volume to looming tax changes and notes that there has been a flood of appraisal requests for tax-related financial planning. Prices are reported to be flat to up slightly. In contrast, an overhang of inventory has kept prices from rising in northern New Jersey and Long Island. Sandy disrupted construction activity in late 2012, though a contact in the homebuilding industry notes that construction sub-contractors are getting a great deal of work from storm-related repairs and reconstruction during a typically slow season.

Office markets were relatively stable in the final months of 2012. A commercial real estate contact reports that the recovery from Sandy in Lower Manhattan has been slow, as a number of buildings in the flood zone remained out of service at year end. More broadly, leasing and sales activity across Manhattan were sluggish in November but picked up in December. Vacancy rates have been steady, while asking rents have edged up, led by brisk gains in Midtown South. Strong demand from the new media and advertising sectors and some pickup from legal services have offset weak demand from the financial sector. Elsewhere in the region, vacancy rates were little changed in the fourth quarter, though asking rents fell noticeably in northern New Jersey.

Other Business Activity

Contacts in the manufacturing sector continue to report little or no growth in activity though they remain mildly optimistic about the near-term outlook. Non-manufacturing contacts report some improvement in business conditions and have grown increasingly optimistic about prospects for 2013. New York City area firms--both manufacturing firms and non-manufacturing firms--say that Sandy adversely affected revenues in November but that business was seen to be back on track in December.

On balance, labor market conditions firmed in late 2012. While business contacts in the manufacturing sector report little or no change in employment, contacts in other sectors note some pickup in hiring. A major New York City employment agency specializing in office jobs said that while it is difficult to assess the labor market during the holiday season some continued softness in labor market conditions is apparent. In particular, financial sector hiring has remained sluggish, but year-end bonuses are expected to be up moderately from a year ago. Much of the bonus pay typically distributed in January was reportedly paid out in December in advance of higher tax rates.

Financial Developments

Small- to medium-sized banks report no change in demand for all loan types except commercial mortgages, where loan demand increased. Bankers report little change in demand for refinancing. The vast majority of respondents continue to report that credit standards were unchanged across all categories. Respondents indicate a decrease in spreads of loan rates over the costs of funds for all loan categories--particularly in residential mortgages, where nearly three in five bankers report lower spreads. Respondents also indicate a decrease in average deposit rates, on balance.

Finally, bankers note declining delinquency rates in all loan categories--most notably in commercial mortgages, where well over half of those surveyed report lower delinquencies.

SOURCE: Federal Reserve Board

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