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 continued to expand moderately since the last report. Manufacturers indicate that input price pressures have abated further, whereas service sector contacts report that they remain fairly widespread; prices of finished goods and services are stable to up slightly. Labor market conditions continue to improve gradually, and businesses have become more willing to negotiate on salary. Retailers report that sales were on the soft side in May and especially in June, whereas new automobile sales are reported to be steady. Tourism activity remains steady at a strong level. Commercial and residential real estate markets have continued to firm throughout the region. Finally, bankers report mixed but generally steady loan demand, no change in credit standards, continued narrowing in loan spreads, and further declines in delinquency rates across all loan categories.

Consumer Spending

Retailers report that sales softened in May and especially in June. One major retail chain reports that same-store sales were little changed from a year earlier, running modestly below plan in May and noticeably below plan in June. Another chain indicates that sales were down noticeably from 2012 levels in both months. In general, New York City stores performed a bit better than those elsewhere in the District--likely buoyed by tourism. Major malls in upstate New York indicate that sales were steady to lower than a year earlier. Most of the retail contacts attribute at least part of the recent softness in sales to unseasonably cold and wet weather. Inventories are generally reported to be at desired levels or a little on the high side. Prices are characterized as steady, and no unusual discounting is reported.

Auto dealers in the Buffalo and Rochester areas report that new vehicle sales were steady at favorable levels in May and June, and continued to run moderately ahead of comparable 2012 levels. Sales of used automobiles are characterized as soft--in large part because of attractive deals on new autos. Wholesale and retail credit conditions for auto purchases remain in good shape.

Tourism activity has been mixed but generally fairly robust since the last report. Manhattan hotels report continued strong business, with total revenues up 7 percent from a year ago: occupancy rates exceeded 90 percent and were roughly on par with a year ago, room rates were up 3-4 percent, and there are about 3 percent more hotel rooms than a year ago. On the other hand, attendance at Broadway theaters has continued to be weak, reflecting considerably fewer shows running than in the spring of 2012. Finally, consumer confidence in the region has improved since the last report: The Conference Board’s June survey of residents of the Middle Atlantic states (NY, NJ, Pa) shows confidence rising for the third straight month, approaching its five-year high set last October; Siena College’s survey of New York State residents shows consumer sentiment rising to its highest level this year in June, led by upstate New York.

Construction and Real Estate

Residential real estate markets in the District have strengthened further since the last report. Sales prices for Manhattan apartments (co-ops and condos) were up moderately from a year earlier, while sales volume was up nearly 20 percent, further sharply reducing the inventory of units on the market. Rents on Manhattan apartments continue to rise and are running roughly 5 percent ahead of comparable 2012 levels, however, rents have slipped modestly in Brooklyn. New Jersey’s housing market has shown more modest signs of improvement: prices are rising slowly, reportedly restrained by an ongoing backlog of distressed properties on the market. However, new construction activity-- particularly of rental apartment buildings--is running substantially ahead of a year ago. Finally, housing market conditions remain particularly strong in western New York State: very tight inventory levels have pushed prices up, and multiple offers and bidding wars have become commonplace, despite continued tight lending standards.

Commercial real estate markets throughout the New York City metropolitan region also showed further improvement in the second quarter. Long Island’s office vacancy rate slipped below 8 percent for the first time in a number of years, while rates in northern New Jersey, Westchester and Fairfield counties edged down but remain on the high side. Office rents are little changed from mid-2012 in these areas. Manhattan’s office vacancy rate ticked up but remains low as of mid-year, while asking rents are up roughly 5 percent over the past year. Industrial markets have also tightened, particularly in Long Island, where vacancy rates have declined steadily and asking rents are up nearly 8 percent over the past year.

Other Business Activity

The labor market continues to improve at a gradual pace. Two major employment agencies describe market fundamentals as favorable but note that the market is difficult to gauge at this typically slow time of year. One contact notes increasing difficulty in finding candidates with specific skill sets-- especially for technology workers--and also finds companies becoming less reluctant to negotiate on salaries. This is described as the best year for college graduates since 2008.

More generally, manufacturing contacts report a modest increase in staffing levels and some pickup in business activity since the last report but do not expect to hire additional workers through the second half of 2013. Contacts in other sectors also report some pickup in both employment and business activity and do plan to ramp up hiring, as well as capital spending, in the months ahead. Input price pressures have abated further in the manufacturing sector but remain fairly widespread among service-sector businesses. Both manufacturers and service-sector contacts report that selling prices are relatively stable.

Financial Developments

Bankers report increased demand for commercial mortgages but decreased demand for residential mortgages. For other loan categories, as well as for refinancing, contacts report no change in demand. Respondents also note that credit standards remain unchanged across all loan categories. Bankers indicate a decrease in spreads of loan rates over costs of funds for all loan categories-- particularly in commercial mortgages. Finally, bankers report decreased delinquency rates for all loan categories, but especially for commercial & industrial loans.

SOURCE: Federal Reserve Board

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