SECOND DISTRICT – NEW YORK
Economic growth in the Second District has remained modest since
the last report, though there have been some signs of improvement in the
labor market. Manufacturers report some further deterioration in their
assessment of overall business conditions but note that orders,
shipments and employment levels have been stable. Consumer spending, on
the other hand, has been comparatively robust, despite low levels of
consumer confidence: auto dealers report brisk business in August and
September, non-auto retail contacts report that sales have been on or
ahead of plan, and tourism activity has remained strong. Commercial real
estate markets have been mixed but, on balance, slightly stronger since
the last report. Home sales have been mixed, with scattered signs of a
pickup, while the rental market has continued to strengthen. New home
construction remains stalled, aside from rental apartments. There has
been substantial new hotel development in Manhattan. Conditions in New
York City’s key securities industry have weakened noticeably. Finally,
bankers report a pickup in demand for residential mortgage loans
(largely refinancing), a slight increase in demand for non-residential
mortgages, some easing in credit standards for business loans, and
little change in delinquency rates.
Consumer Spending
Non-auto retailers report that same store sales were mostly on or
ahead of plan in August and September and moderately ahead of a year
earlier. A number of contacts describe back-to-school sales as fairly
strong. One major mall in western New York State notes that a large flow
of Canadian shoppers has contributed significantly to strong overall
sales. While stores across much of the District had fairly widespread
disruptions from Hurricane Irene, the effects were relatively brief and
there was little or no net effect on sales or bottom line. Inventories
are generally reported to be in good shape, though one chain describes
them as a bit high. While some retailers reported sizable price
increases for cotton-based apparel, others indicated that they have held
off on such increases thus far; prices of other retail goods were
generally reported to be steady to down slightly. Auto dealers in
upstate New York report that sales picked up since the last report,
helped by a replenishment of their inventories, as disruptions from the
tsunami in Japan earlier this year dissipated. Buffalo-area dealers
estimate that sales of new vehicles were up 5-10 percent from a year ago
in both August and September. Rochester-area dealers indicate
year-over-year sales gains of 11 percent in August and in the range of
10-15 percent for September. Auto dealers in both areas continue to
report strong sales of used cars, with persistently lean inventories
driving up prices.
Dealers’ service and parts departments also report sturdy business. Auto-industry contacts describe
both retail and wholesale credit conditions as “fine”.
Consumer confidence remains at depressed levels. The Conference Board reports that
consumer confidence among residents of the Middle Atlantic states (NY, NJ, PA) fell in August and
edged down further in September. Siena College reports that consumer confidence fell across most
of New York State in the third quarter, with the steepest declines seen in New York City and the
mid-Hudson Valley; only the Albany region saw an increase in confidence. Tourism activity in New
York City has shown continued strength since the last report. Broadway theaters report that, aside
from a brief swoon in business in late August due to Hurricane Irene, attendance has been fairly
strong and roughly on par with a year earlier. Moreover, revenues for the full month of September
were up nearly 10 percent from a year earlier, despite fewer than usual Broadway shows opening this
fall. Manhattan hotels report that revenue per room was up roughly 6 percent from a year ago in both
August and September, despite the hurricane. Most of this increase reflects higher room rates, as
occupancy rates were little changed. Nevertheless, this implies a sizeable rise in tourism, because
there are 6-7 percent more hotel rooms in Manhattan than a year ago.
Construction and Real Estate
Residential construction remains moribund, particularly for
single-family homes. Home sales have picked up a bit in parts of the
District but remain weak overall, while the rental market has continued
to strengthen. The housing market in northern New Jersey remains
sluggish: with a dearth of new home construction, aside from some
development of rental projects, the inventory of distressed properties
has declined slightly but remains large; sales volume remains sluggish,
and home prices have held steady and appear to have bottomed out. After
a strong July and August, sales of Manhattan apartments tapered off in
September; while co-op sales have been relatively sluggish, condominium
sales have been buoyed by foreign buyers. The inventory of available
newlyconstructed condos has declined considerably in recent months but
remains elevated. The lowering of the jumbo mortgage threshold from
$730,000 to $625,500 on October 1st appears to have had little effect on
the market. Overall, co-op and condo prices remain essentially flat. New
York City’s rental market continues to strengthen. Net effective rents
(which take into account landlord concessions that were prevalent a year
ago but are now rare) are up roughly 5 percent from a year ago, with
steeper increases at the high end of the market. Realtors in western New
York State note that market conditions have improved slightly, with
sales picking up and prices up slightly from a year ago.
Commercial real estate markets have been mixed since the last
report. In New York City and metropolitan Buffalo, office vacancy rates
declined in the third quarter, while rents moved up. However, vacancy
rates rose in Westchester and Fairfield counties and were little changed
across other parts of the District, while asking rents were generally
down modestly. The market for industrial and warehouse space has not
changed noticeably, except in metropolitan Albany and northern New
Jersey, where asking rents are down moderately from a year ago. New
office construction and development remains sluggish, but a number of
major hotel development projects have been announced recently or are
already underway in New York City.
Other Business Activity
A financial industry contact notes that securities firms have not
been doing well recently, with all major business lines-including sales
& trading, underwriting, and IPOs-weakening. Declining profits, along
with uncertainty about the regulatory environment, are reportedly
causing firms to pull back on hiring and compensation; some layoffs are
also anticipated in this industry the months ahead. More generally, a
major New York City employment agency reports that the job market has
improved a bit since Labor Day but is still sluggish; hiring activity is
described as not terrible but not great-again partly reflecting weakness
in the financial sector. In other sectors, though, labor market
conditions have been steady to slightly stronger since the last report.
Two major retail chains indicate that they plan to hire more seasonal
workers for the upcoming holiday season than in 2010. Both manufacturers
and firms in a variety of service sectors indicate that employment
levels have been steady since the last report, and that they plan to
increase headcounts over the next six months.
Manufacturing firms across New York State indicate that their
assessment of general business conditions has deteriorated further since
the last report, although they note that orders and shipments have held
steady. Respondents in that sector anticipate only modest improvement in
business conditions and activity in the months ahead. Manufacturers also
note that input price pressures have moderated somewhat and that selling
prices have remained essentially stable.
Financial Developments
Bankers’ responses suggest increased demand for residential and
commercial mortgages and no change in demand for consumer loans or
commercial and industrial loans. Increased demand was most prevalent for
residential mortgages, where three times as many bankers indicated an
increase as a decrease in demand. Much of this appears to reflect
increased refinancing activity. Bankers report some slight tightening of
credit standards for commercial and industrial loans, but in other loan
categories, almost all contacts indicated no change in standards.
Respondents report a decrease in spreads of loan rates over costs of
funds for all loan categories-especially commercial mortgages.
Respondents also indicated widespread decreases in the average deposit
rate. Finally, bankers indicate a modest decrease in delinquency rates
for residential mortgages, but a slight increase in delinquencies for
commercial and industrial loans. No change was indicated in other loan
categories.
** Market News International Washington Bureau: 202-371-2121 **
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