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.

SOURCE: Federal Reserve Board

Economic activity in the Second District has continued to expand at a moderate pace since the last report. Business contacts report some pickup in input price pressures but relatively few say they are increasing their selling prices. The labor market has shown scattered signs of improvement: manufacturers report an upturn in hiring, and a major employment agency notes increasingly strong demand for temps. Retailers report that sales have generally been strong and ahead of plan in January and early February. Auto sales in upstate New York were also described as robust since the beginning of the year. Tourism activity has been mixed but generally strong thus far in 2013, with hotels getting an additional boost from displaced residents and recovery workers in the aftermath of Superstorm Sandy. Both residential and commercial real estate markets showed signs of improving since the last report. Finally, bankers report increased loan demand, no change in credit standards, further narrowing in loan spreads, and lower delinquency rates on commercial loans and mortgages.

Consumer Spending

Retailers report that sales were strong in January but mixed in early February. Contacts in upstate New York report that sales, as well as traffic, were strong in January but slowed somewhat during the first half of February, in part, because of bad weather in the early part of the month. Moreover, contacts report that the mix of sales activity has continued to shift from actual mall sales to Internet sales. One retail contact notes that deep discounting is becoming increasingly common

Auto dealers in the Buffalo and Rochester areas report that new vehicle sales were exceptionally strong in January, running 20-30 percent ahead of a year earlier, and have shown continued strength in early February--a marked contrast from December, when sales were sluggish. Used vehicle sales have remained flat recently. Wholesale and retail credit conditions for auto purchases are reported to be in good shape, and one contact notes that lenders have become more aggressive.

Tourism activity has generally been robust since the last report. Manhattan hotels report that business was relatively brisk in January, with revenues up 10-15 percent from a year earlier, driven largely by substantially higher occupancy rates but also boosted by a 5 percent increase in room rates. Hotels in the outer boroughs have seen even more dramatic increases, upwards of 40 percent; much of this surge in activity is attributed to Sandy, as hotel rooms are being occupied by displaced residents, utility workers, insurance adjusters, and others who are helping with rebuilding and restoration. Broadway theaters report that attendance and revenues have been running below comparable 2012 levels in January and early December-- mainly reflecting a 20-30 percent reduction in the number of shows. Finally, consumer confidence in the region was mixed in January. The Conference Board’s survey of residents of the Middle Atlantic states (NY, NJ, Pa) shows confidence rebounding strongly in January, after slipping to a more than one-year low in December; however, Siena College’s survey of New York State residents shows confidence slipping to a 5-month low in January, with declines spread evenly between upstate and the New York City area.

Construction and Real Estate

Residential real estate markets in the District have shown signs of improvement in recent weeks. A major appraisal firm reports that New York City’s co-op and condo market has remained surprisingly active in early 2013, following an exceptionally strong fourth quarter. Apartment sales are up strongly from a year ago, and tight inventories are starting to nudge up prices across the board. One contact notes that year-end inventory levels were the lowest he has seen in more than 12 years. The apartment rental market, however, has leveled off; after rising at a roughly 5-10 percent rate in 2012, rents on apartments in both Manhattan and the outer boroughs are estimated to be running just 1-2 percent ahead of a year ago in early 2013.

An expert on northern New Jersey’s housing market reports a pickup in activity and an improvement in the general tone of the market, describing the current season as the best since 2007. Residential builders are reported to be increasingly optimistic- -they anticipate a substantially better year than 2012 and are investing more heavily in new projects. Single-family construction is seen as picking up, as multi-family construction retains momentum. While there remains a large overhang of foreclosed and distressed properties, many of these are expected to be snapped up by investors. Realtors in the Buffalo area report continued favorable conditions in the housing market: prices have risen steadily at a moderate pace, inventory levels are fairly low, and sales activity has been steady.

Commercial real estate markets across the District were mixed but generally firmer since the last report. Office vacancy rates declined across most of the District, though rents in most areas continued to run below year-ago levels. Manhattan’s office market was particularly robust, with vacancy rates continuing to decline and asking rents up 4 percent from a year ago. In northern New Jersey and in the Buffalo, Albany and Syracuse metro areas, vacancy rates have declined since the start of the year, but rents continue to run 1-3 percent below early 2012 levels. However, office markets in Westchester and Fairfield counties have been increasingly slack, with vacancy rates climbing to new highs and rents slipping roughly 4 percent over the past year. Market conditions in metro Rochester have been essentially flat. Industrial markets have shown some signs of firming. In northern New Jersey, Long Island, Westchester and Fairfield counties, industrial vacancy rates have been steady since the beginning of the year, while rents are running 2-4 percent ahead of comparable 2012 levels. Industrial vacancy rates across upstate New York have continued to decline, reaching their lowest levels in three years, while rents have also drifted down.

Other Business Activity

Non-manufacturing contacts report little change in business conditions overall, though they have grown increasingly optimistic about prospects for 2013. Contacts in the manufacturing sector report a pickup in activity since the start of the year and are increasingly optimistic about the near-term outlook. A trucking industry analyst reports that truck tonnage (shipments) strengthened substantially in both December and January, after adjusting for seasonal variation. In general, business contacts note some increase in input price pressures but relatively few say they are increasing their own selling prices.

There are scattered signs of improvement in the job market thus far in 2013. A growing number of manufacturing contacts report that they are increasing staffing levels and are increasingly inclined to do so in the near future as well. A major employment agency reports that demand for full-time workers has improved slowly but steadily; while potential employers note that strong job candidates are increasingly hard to find, most continue to hold the line on salaries. The market for temps (contract workers) is described as very strong, particularly for one-day assignments.

Financial Developments

Small- to medium-sized banks report steady demand for consumer loans but increased demand for all other categories of loans; demand for refinancing was unchanged. Bankers report that credit standards were unchanged across all loan categories. Respondents indicate a decrease in spreads of loan rates over costs of funds for all loan categories--particularly in residential mortgages, where 40 percent of bankers indicate lower spreads and none indicates higher spreads. Most also indicate a decrease in the average deposit rate. Finally, banks report decreased delinquency rates on commercial and industrial loans and especially on commercial mortgages but indicate no change for residential mortgages and consumer loans.

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