WASHINGTON (MNI) – The following is the text of the Federal Reserve
assessment of the Second District’s economy in its Beige Book
survey of economic conditions published Wednesday:

SECOND DISTRICT — NEW YORK

The Second District’s economy has strengthened noticeably since the
last report, though hiring remains sluggish; price pressures have
increased moderately but prices at the consumer level remain stable.
Manufacturing-sector contacts report improved activity. Auto dealers
note some pickup in sales in March, following a lull in February, while
general merchandise retailers report improving sales in both months.
Tourism activity in New York City has strengthened further since the
last report. Commercial real estate markets have been steady to slacker.
Residential real estate markets, though still sluggish, have shown
scattered signs of improvement, especially at the lower end of the
market. Bankers report steady to weaker loan demand, higher delinquency
rates (except on consumer loans), and tighter credit standards.

Consumer Spending

Retailers report further strengthening in sales since the last
report. Contacts report that general merchandise sales were on or ahead
of plan in February and March, with year-over year gains in
comparable-store sales running as high as 10 to 13 percent in March.
While part of this strength was attributed to the earlier occurrence of
Easter this year, most of it was ascribed to underlying strength in
demand and rising consumer confidence. One large mall in the Buffalo
area also notes strong spending by Canadian shoppers. While the strength
in sales is reported to be fairly broad-based, a major retail chain
notes particular strength in sales of seasonal apparel and big-ticket
goods for the home. Inventories are reported to be in very good shape,
and a number of retailers say they are discounting less heavily. Auto
dealers report that sales remained sluggish in February but picked up
noticeably in March. Credit conditions for car buyers have continued to
improve, though floor-plan credit (for dealers) remains tight. Revenues
from dealersf service departments are said to be doing relatively well.
Contacts are generally optimistic about the outlook for the rest of
2010.

Tourism activity in New York City has continued to strengthen since
the last report. Manhattan hotels report that business was relatively
brisk in February and that preliminary indications for March show even
more strength: occupancy rates have risen steadily and are estimated to
be up 8 percentage points from a year earlier in March, despite an
increase in the overall number of hotel rooms. Total revenue per room,
which had been down more than 10 percent from a year earlier in late
2009, was estimated to be up 6 percent in March. Similarly, Broadway
theaters report a noticeable pickup in business since the last report,
following a weather-related lull in early February: March revenues were
up 16 percent from a year earlier, while attendance rose 9 percent.
Separately, The Conference Board reports that consumer confidence among
residents of the Middle Atlantic states (NY, NJ, Pa) slipped in February
but rebounded in March, to just below a two year high.

Construction and Real Estate

Housing markets, though still weak, have shown some signs of
improvement since the last report.especially at the lower end of the
market. A contact that monitors New Jersey’s housing industry notes
that single-family building permits, though still sluggish, have picked
up in early 2010. New home sales are steady at a depressed level, but
resale activity has picked up somewhat. Another real estate contact in
northern New Jersey notes that, while sales of homes in the $500K and up
range remain sluggish, more moderately priced homes are selling fairly
well, sometimes with multiple offers. There are reported to be
relatively few distress sales of late. While prices have stopped
declining across much of New Jersey, areas near New York City have seen
the pace of decline accelerate somewhat. Realtors across New York State
report a pickup in both sales and prices in early 2010, though most of
the price increases were upstate. Buffalo-area home sales reportedly
picked up in February and March, particularly at the lower end of the
price spectrum.partly attributed to the extended homebuyer tax credit.
Home prices in the Buffalo area were reported to be up more than 10
percent from a year earlier. Manhattan’s housing market remains
sluggish, though there are signs of stabilization, especially in the
rental market. Co-op and condo sales transactions were reported to have
doubled in the first quarter from the depressed levels of a year earlier
but were still down modestly from the 4th quarter of 2009.

Prices were also down modestly for the quarter and continued to run
roughly 20 percent below a year earlier, with milder declines on studio
and 1-bedroom apartments but steeper price drops on larger units.
Manhattanfs apartment rental market showed further signs of stabilizing
in March: rents edged up and were down just 1. percent from a year
earlier, though vacancy rates rose modestly.

Commercial real estate markets were steady to softer since the last
report. Manhattanfs office vacancy rate continued to climb in the first
quarter, though at a more subdued pace than in 2009; asking rents for
Class A properties continued to run 20-25 percent lower than a year
earlier. Still, a contact at a major brokerage firm notes a pickup in
leasing activity and sees signs of stabilization in Midtown, though not
in Downtown. Looking at the surrounding areas, office vacancy rates
continued to drift down in Long Island, were steady in northern New
Jersey, but continued to rise in Westchester and Fairfield Counties.
Asking rents were down moderately (3 to 6 percent) in these markets.
Office vacancy rates in most of upstate New York remain relatively
stable.up a bit in the Buffalo and Rochester areas but down modestly in
the Albany area. Asking rents are relatively steady in the Buffalo and
Albany areas but down 3-8 percent from a year ago in metropolitan
Rochester and down more steeply in the Syracuse area. Industrial
(factory and warehouse) markets slackened throughout most of the
District, with vacancy rates rising and rents falling. A real estate
developer in the Buffalo area notes that commercial development and
construction are increasingly sparse and that credit remains
exceptionally tight.

Other Business Activity

A major New York City employment agency reports that activity
picked up slightly in March but remains weak.in part, reflecting the
holidays in the final week of the month. There continues to be very
little hiring activity from major legal and financial firms. Still, a
contact in the securities industry notes that layoffs have largely wound
down and that some firms are looking to increase staff in regulatory
compliance. Cash bonuses have been slashed for highly compensated
employees, but some banks have reportedly raised salaries to offset part
of the bonus cuts. More generally, the securities industry is reported
to be faring relatively well, though there is some concern about the
outlook: M&A and IPO activity remain dormant, profits generated by the
secondary market are not seen continuing this year, and there remains
concern about proposed tax and regulatory issues.

Looking at business conditions more generally, contacts outside the
manufacturing sector continue to describe conditions as stable or rising
modestly. However, manufacturing contacts in the District note improved
conditions since the last report. A trucking-industry contact reports
some pickup in business in recent months, though conditions remain weak.
There are scattered reports of shortages of truck drivers.partly due to
more stringent requirements for commercial driversf licenses.

Financial Developments

Reports on loan demand were mixed across the consumer and
commercial loan groups. Bankers indicate decreased demand in the
consumer loan and residential mortgage categories, but little change in
demand for commercial mortgages and loans. Bankers also reported
decreased demand for refinancing. Respondents indicate a tightening of
credit standards in all categories, most notably in the commercial
mortgage category. Bankers report no change in the spreads of loan rates
over costs of funds, except in the commercial mortgage category, where
they report an increase. Respondents indicate widespread decreases in
average deposit rates. Finally, respondents note increased delinquency
rates for all categories except consumer loans, where they reported no
change.

** Market News International Washington Bureau: 202-371-2121 **

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