WASHINGTON (MNI) – The following is the the text of the Federal
Reserve’s Beige Book survey Second District summary, published
Wednesday:

The Second District’s economy has strengthened further since the
last report, with scattered signs of improvement in the job market;
manufacturers and other firms continue to face upward cost pressures,
but prices at the consumer level remain relatively stable.
Manufacturing-sector contacts continue to report improvement in business
activity and increasingly widespread plans to increase capital spending.
Auto dealers report strong sales for April but mixed results for May.
Similarly, non-auto retailers generally report that sales were robust
and ahead of plan since the last report, though one large chain reports
that sales slowed in May. Tourism activity in New York City has
strengthened further since the last report. Commercial real estate
markets have generally been steady since the last report. Residential
real estate markets have been steady to somewhat firmer since the last
report, especially at the lower end of the market. Finally, bankers
report weaker demand for consumer loans but little change in other
categories; they also note some tightening in credit standards but
little change in credit spreads or delinquency rates.

Consumer Spending

Retailers report strong sales for April but mixed results for May.
Contacts at two major malls in western New York State report that sales
and traffic were generally brisk in April and May, though inclement
weather in early May led to a slow start to the month. One mall
indicates that Canadian shoppers continue to represent a large share of
customers. A major retail chain reports that business was ahead of plan
in April, with same-store up more than 5 percent; however, sales
reportedly weakened in the first three weeks of May and were somewhat
below plan, with New York City continuing to outperform other areas. In
general, contacts report that sales of clothing, cosmetics and jewelry
were relatively strong. However, sales of goods for the home were more
mixed, with one contact noting a recent drop-off in sales of large
appliances, which is partly attributed to the end of government rebate
programs. Separately, the Conference Board reports that consumer
confidence among residents of the Middle Atlantic states (NY, NJ, Pa)
surged to a two-year high in April but retreated modestly in May.

Vehicle sales have reportedly slowed a bit in recent weeks.
Rochester-areas auto dealers report that sales were relatively strong in
April, rising by as much as 25 percent from a year ago (though spring
2009 makes a particularly low base for comparison); however, results for
May have been more mixed, with some softening in demand for domestic
makes. Dealers in the Buffalo area report that sales remained strong in
April, rising nearly 10 percent from a year earlier, but that they
cooled in May and were modestly lower than in May 2009. Auto dealers in
both areas report recent improvement in both retail and wholesale credit
conditions.

Tourism activity in New York City has shown further signs of
strengthening in April and May. Manhattan hotels report a marked pickup
in revenue in April and the first three weeks of May, reflecting both
higher room rates and increased occupancy. Total revenues rose by more
than the seasonal norm from the first quarter and were up roughly 10
percent from a year earlier. Similarly, Broadway theaters report that
business has picked up noticeably in recent weeks, after slowing a bit
in mid-April. Revenues for the first half of May were running 16 percent
ahead of a year ago, partly reflecting increased attendance, but
primarily due to higher ticket prices.

Construction and Real Estate

Housing markets have been steady to somewhat firmer since the last
report, with the gains largely attributed to the soon-to-expire
home-buyer tax credit spurring demand at the lower end. Realtors across
New York State report that sales activity was roughly 20 percent higher
in April than a year earlier and prices were up about 8 percent on
average. Similarly, Buffalo-area Realtors report that home sales were
brisk in April, and that prices were up more than 10 percent from a year
earlier, though conditions are reported to have cooled off dramatically
in May, due to the end of the tax credit. An authority on New Jersey’s
housing industry also reports a moderate pickup in sales activity this
quarter, particularly at the lower end of the marketagain, largely
attributed to the home-buyer tax credit. In other segments of northern
New Jersey’s market, prices are essentially flat, and price trends are
not as robust as builders and developers had expected, as a large
shadow inventory of existing homes is said to be weighing down the
market. There is concern that conditions will weaken again in the third
quarter, without the support of the home-buyer tax credit. Housing
affordability remains a major issue.

Activity in Manhattan’s co-op and condo market has leveled off,
following a modest pickup in the first quarter. The pace of new contract
signings has retreated a bit in recent weeks, while prices have held
steady at about 20-30 percent below their peak. There remains a large
supply of units on the markets, though one contact notes that the
inventory of competitively priced units is fairly lean. While the
home-buyer tax credit has had little impact on Manhattan’s high-priced
market, it has reportedly had a positive effect elsewhere in New York
City, where prices are considerably more moderate. Manhattan’s apartment
rental market has strengthened since the last report. Rents have
recovered modestly, and landlords are offering less generous concessions
than last year or even a few months ago. The inventory of available
rental units has stabilized.

Commercial real estate markets in and around New York City have
been relatively steady since the last report. Leasing activity, which
was very depressed throughout most of 2009, has picked up noticeably
since the beginning of this year and is now back up to normal levels.
Much of the recent pickup has come from legal firms and, to a lesser
extent, from business services, media, and government agencies; in
contrast, there has been a dearth of new leasing by financial firms.
Still, vacancy rates continue to edge up, as businesses tend to be
taking less space than they had at prior locations. Asking rents
continue to drift down but appear to be bottoming; net effective rents
have been stable since last summer, as landlords have gradually scaled
back on concessions.

Other Business Activity

Manufacturing firms in the District remain upbeat, noting ongoing
gains in employment, new orders, shipments and general business
activity; a growing proportion of respondents plans to increase capital
spending in the months ahead. Contacts outside the manufacturing sector
continue to describe both business conditions and employment levels as
stable or rising modestly. Both manufacturers and other firms report
continued widespread rises in prices paid but only modest increases in
selling prices. A contact in the trucking industry reports that business
has continued to improve moderately since the last report and that
truckers are seeing some relief from lower diesel prices. There are
scattered but increasing reports of driver turnoverdrivers leaving for
more lucrative jobs. A securities-industry contact notes that business
conditions have been good, with both underwriting and investment banking
activity strengthening, and contends that major layoffs are now behind
us; however, firms are reportedly putting off hiring and investment, due
to uncertainty about regulatory reform as well as concern about global
financial conditions, particularly in Europe. Recent hiring by financial
firms has largely been in the area of compliance.

Financial Developments

Contacts at small to medium-sized banks in the District report
mixed trends in loan demand: respondents indicated decreased demand for
consumer loans, increased demand for commercial mortgages, and no change
for residential mortgages and commercial and industrial loans. Bankers
also note increased demand for refinancing, for the first time in almost
a year. Respondents indicate tightening credit standards for commercial
mortgage and commercial and industrial loans but no change in standards
for other types of loans. No banker reported easing credit standards for
any type of loan. Bankers report an increase in spreads of loan rates
over costs of funds for consumer loans and commercial and industrial
loans. Spreads on residential and commercial mortgages were steady.
Finally, respondents report little or no change in delinquency rates for
any category.

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

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