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

The Second District’s economy has shown further signs of
strengthening, on balance, since the last report. Input price pressures
have receded a bit, while consumer prices appear to be steady. There are
signs of improvement in the labor market across a range of industries.
Manufacturing-sector contacts report some recent leveling off in
business activity, after a strong second quarter. General merchandise
retailers report ongoing improvement in business, with sales running on
or above plan and inventories reported to be at favorable levels. Auto
dealers report that sales have tapered off in recent weeks but remain
ahead of 2009 levels. Tourism activity in New York City has continued to
be robust since the last report, helped by a reported pickup in business
travel. Commercial real estate markets have generally been steady since
the last report, while residential real estate markets have shown signs
of softening. Finally, bankers report a pickup in demand for both
consumer and home mortgage loans but some slippage in demand for
commercial loans and mortgages; they also report declining consumer
delinquency rates and less widespread tightening in credit standards
than in recent months.

Consumer Spending

Non-auto retailers report that sales have remained on or above plan
since the last report, with comparable-store gains of roughly 5 percent
over a year earlier in June and 8-12 percent in early July. Contacts
report particular strength at New York City stores, whereas a major mall
in upstate New York indicates more moderate growth. Contacts generally
indicate that sales of fashion items and apparel were particularly
strong, whereas sales of big-ticket appliances were relatively sluggish.
Inventories are reported to be at satisfactory levels, while selling
prices are stable to down slightly; prices are expected to remain steady
during the second half of 2010 and rise modestly in 2011.

An association of auto dealers in upstate New York reports that
sales of new autos, which were up 10 percent from a year earlier in May,
retreated a bit in June but were still up moderately from comparable
2009 levels. Used auto sales have been running lower than a year ago,
due largely to lean inventories. Dealers report that retail credit
conditions have remained favorable and that wholesale credit conditions
have improved. Consumer confidence weakened noticeably in June: The
Conference Board reports that confidence among residents of the Middle
Atlantic states (NY, NJ, Pa) fell to its lowest level this year, and
Siena College’s latest survey of New York State residents shows
confidence slipping to its lowest level in more than a year.

Tourism activity in New York City has grown increasingly robust
since the last report. Manhattan hotels indicate that occupancy rates
rose to a record high for May and remained exceptionally high in
Juneeven with a sizable increase in the number of hotel rooms over the
past year. Room rates are running 10 to 15 percent higher than a year
earlier, and total revenues are reported to be up more than 20 percent.
Much of the recent improvement is attributed to a rebound in business
travel. Broadway theaters report that attendance remained brisk in June
but tapered off moderately in early July. Revenues were up 3 percent
from a year earlier in June and little changed in July.

Construction and Real Estate

Housing markets have softened somewhat, on balance, since the last
report, with much of the weakening attributed to the expiration of the
home-buyer tax credit. An authority on New Jersey’s housing industry
characterizes housing demand as sluggish and lacking momentum. Activity
has tapered off, while transaction prices for both new and existing
homes appear to be drifting down. Northern New Jersey’s rental market
has also slackened, with a growing number of available units on the
market and landlords offering more incentives and concessions; a number
of buildings initially intended as condos have converted to rentals.
Similarly, Buffalo-area Realtors report that home sales activity
weakened substantially in May and June, reportedly due largely to the
expiration of the extended homebuyers’ tax credit, though selling prices
continued to run ahead of comparable 2009 levels.

In New York City, conditions were more mixed, with co-op and condo
sales activity picking up in the second quarter but prices generally
holding steady. The number of apartment sales rose by a bit more than
the seasonal norm in the first quarter. The median sales price of an
apartment was down 7 percent from a year ago in Queens but up 5 percent
in Brooklyn. In Manhattan, the median price rose roughly 8 percent from
a year earlier, but the price per square foot was virtually unchanged.
Manhattan’s rental market, though still well below its peak of a few
years ago, appears to be on the rebound: leasing activity picked up
noticeably, rents have stabilized, landlords are giving less generous
concessions, and the inventory of available rentals has declined.

Commercial real estate markets across the District were mixed but,
on balance, little changed since the last report. Office leasing
activity picked up considerably in New York City, and vacancy rates
declined modestly, but asking rents are still down more than 20 percent
from a year ago. Vacancy rates were steady in Long Island and Northern
New Jersey, while asking rents were down slightlycompared to both the
first quarter and a year earlier. In Westchester and Fairfield counties,
market conditions improved slightly, as vacancy rates edged down and
asking rents rose. Office markets were mixed in upstate New York:
vacancy rates edged up in most major markets but asking rents continued
to run modestly above year-ago levels. Industrial markets were mostly
softer in the second quarter: industrial vacancy rates rose across most
of upstate New York and in Westchester and Fairfield counties but were
little changed in Long Island and down modestly in northern New Jersey.
Industrial rents were down moderately from a year ago in most areas.
Finally, Manhattan’s retail leasing market picked up in the second
quarter, while northern New Jersey’s remained stable. Commercial
development remains very sluggish in general, though developers plan
further hotel construction in New York City.

Other Business Activity

Manufacturing firms in the District report some leveling off in
business activity in recent weeks, after reporting fairly widespread
improvement in the second quarter. Firms still report that they are
adding workers, on net, but to a less widespread degree than in recent
months. Contacts outside the manufacturing sector, however, report some
recent improvement in general business conditions and a pickup in
employment. Contacts also remain fairly optimistic about the near term
outlook and plan to expand hiring activity and capital spending
moderately in the months ahead. Both manufacturers and other firms
report moderate increases in prices paid but virtually no change in
selling prices. A major NYC employment agency, specializing in office
jobs, reports that hiring activity has picked up since the last report,
as demand from the legal sector remains brisk and financial sector
hiring has picked up in recent weeks. Salaries for administrative jobs
have started to edge up. There has been a relatively light flow of 2010
college grads looking for jobs. Separately, a securities-industry
contact notes that, while there are ongoing layoffs in certain areas
related to mergers and restructuring, major firms are hiring in the
areas of accounting, compliance, and systems development. Compensation
at large financial firms is reported to be holding relatively steady.

Financial Developments

Contacts at small to medium sized banks in the District report that
loan demand was mixed across the consumer and commercial loan groups:
demand tended to increase for consumer loans and residential mortgages
but decrease for commercial mortgages and commercial and industrial
loans. This marks the first time since 2005 that more respondents
reported rising than falling consumer loan demand. Bankers’ responses
also suggest a continued increase in refinancing activity.

Respondents indicate a tightening of credit standards for all
categories except consumer loans, though the tightening across all
segments is reported to be less widespread than it has been at any time
in the past three years. Spreads of loans rates over cost of funds are
indicated to be steady for consumer loans and residential mortgages but
higher on commercial loans and mortgages. Banks mostly indicate that
average deposit rates have decreased. Finally, respondents reported a
decrease in delinquency rates for consumer loans but little or no change
in delinquencies in other loan categories.

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

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