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 continued at a moderate pace since the last report. Contacts indicate that cost pressures remain moderate, while selling prices continue to be steady to up slightly. Labor market conditions have shown further signs of improvement, while wage increases have remained subdued. Retailers report that sales picked up a bit in July and August and were on or close to plan; new automobile sales have strengthened since the last report. Tourism activity has been mixed since the last report. Commercial and especially residential real estate markets have shown signs of firming. Finally, bankers report steady to somewhat softer loan demand, little change in credit standards, some leveling off in loan spreads, and widespread declines in delinquency rates.

Consumer Spending

Retailers report that sales were mixed but on or close to plan in July and early August. A major retail chain reports that sales were on plan in July and in early August, with New York City stores out-performing the rest of the region somewhat. One major mall in upstate New York notes that sales have picked up in recent weeks, following a sluggish June when sales were hurt by inclement weather. However, another upstate mall reports that sales are down slightly from a year ago, in part reflecting fewer Canadian shoppers. Inventories are generally at or near desired levels. Prices are generally described as stable, though a few contacts say there is significant discounting.

Auto dealers in the Buffalo and Rochester areas report that new vehicle sales strengthened in July, running roughly 15 percent ahead of comparable 2012 levels; early indications are that sales in August have been similarly robust. High end brands are reported to be selling particularly well. Sales of used automobiles have been mixed but generally soft. Wholesale and retail credit conditions for auto purchases continue to be characterized as favorable.

Tourism activity has been mixed since the last report. Hotels across parts of upstate New York have seen some decline in occupancy rates. Business at Broadway theaters has picked up somewhat from mid-July to mid-August; attendance is still down modestly from a year earlier but not by nearly as much as in June and early July. Moreover, revenue was running ahead of comparable 2012 levels in July and the first part of August--the first such gain since March. Finally, consumer confidence in the region has retreated slightly since the last report: both The Conference Board’s survey of residents of the Middle Atlantic states (NY, NJ, PA) and Siena College’s survey of New York State residents show confidence declining modestly in July but running roughly on par with a year earlier.

Construction and Real Estate

Residential real estate markets in the District have strengthened since the last report. Buffalo-area contacts describe market conditions as very robust, as demand continues to outstrip supply. Thus far, there has been little new construction, and the lack of inventory has pushed prices up. Bidding wars are common for desirable properties. Similarly, sales activity in New York City’s co-op and condo market has been unusually strong in July and August. The inventory of available apartments for sale has declined further and is at new lows, except at the high end of the market. Prices have been rising only modestly in Manhattan, though in Brooklyn, prices are reported to be up by close to 10 percent over the past year. Manhattan’s rental market appears to be at a plateau: rents have leveled off and are up only marginally from a year ago. Brooklyn rents, on the other hand are up 5-10 percent over the past year. As in the sales market, the inventory of available rentals remains tight throughout New York City.

An authority on New Jersey’s housing industry reports that market conditions continue to improve gradually: sales activity has picked up somewhat and prices of existing homes are up roughly 2 percent from a year ago. Multi-family construction activity has been robust but single-family construction remains sluggish; there continues to be little or no spec building. A sizable inventory of distressed properties persists. The New Jersey shore rental market has not yet recovered to 2012 levels; markets in communities hardest hit by Sandy remain particularly depressed.

Commercial real estate markets across the District have been steady to slightly firmer since the last report. Manhattan’s office vacancy rate remains little changed at a low level and is down modestly from a year ago; asking rents for Class A properties have been flat, whereas rents on Class B office space have been trending up and have risen more than 10 percent over the past year. Office vacancy rates in Northern New Jersey, as well as in Westchester and Fairfield counties, have come down since the beginning of this year, though they remain elevated. Long Island’s vacancy rate is steady at a low level. Office markets in the Buffalo and Rochester areas have been stable, while Albany’s has been somewhat softer.

Other Business Activity

The labor market has shown signs of strengthening. One major employment agency notes that summer business has been unusually strong across the board--in terms of both industries and occupations. Another major agency describes the improvement as more gradual. Both these contacts report that people are finding jobs more quickly and that demand for IT workers has been particularly strong. Companies are also described as increasingly negotiable on salary, though pay has yet to start escalating significantly.

Manufacturing firms in the District report a pickup in employment levels, and a growing proportion of contacts plan to add workers in the months ahead. More broadly, manufacturers report that business activity has continued to improve modestly since the last report, that input price pressures are steady and that selling prices are little changed. Non-manufacturing firms indicate that both business and hiring activity have been steady since the last report, though these contacts have become a bit more optimistic about the near term outlook and also in their hiring plans. Service sector firms report that cost pressures remain somewhat widespread but are more subdued than earlier in the year.

Financial Developments

Small- to medium-sized banks in the District report a decrease in demand for residential mortgages but little change in demand for other types of loans. Bankers report fairly widespread declines in refinancing demand--more so than at any time in the past three years. Respondents indicate that credit standards are little changed across all loan categories. Spreads of loan rates over costs of funds are reported to have narrowed, on balance, but to a lesser extent than has been the case for most of the past two years. Finally, bankers report widespread decreases in delinquency rates, particularly for consumer loans and residential mortgages.

SOURCE: Federal Reserve Board

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