WASHINGTON (MNI) – The following is the text of the latest
Beige Book survey of economic conditions in the Federal Reserve’s First
District, published Wednesday:

SECOND DISTRICT — New York

Economic activity in the Second District has held steady since
the last report. Prices of finished goods and services have generally
been stable. The labor market has shown further signs of softening, as
fewer business contacts report that they are adding workers, and a major
employment agency describes hiring activity as sluggish. Retailers,
including auto dealers, note some leveling off in sales activity
following increases. Tourism activity has generally held steady at a
high level, though there were some indications of softening in
mid-September. Residential real estate markets have shown further signs
of improvement. Office markets have shown some signs of slackening, but
industrial markets have picked up modestly. Finally, bankers report
increased loan demand, except on consumer loans, steady to tighter
credit standards, and lower delinquency rates on commercial loans and
mortgages.

Consumer Spending

Retailers report that sales activity has remained flat in recent
weeks. A major retail chain reports that sales in the region were
sluggish in August and especially in September, running well below
comparable 2011 levels. Some of the weakness is attributed to
unseasonably mild weather, which dampened sales of seasonal merchandise.
A major mall in upstate New York describes sales activity as stagnant,
with sales flat to down slightly from a year ago in August and
September. The pricing environment is described as quite promotional,
and acquisition costs of goods are characterized as mostly stable to
declining modestly. Auto dealers in upstate New York report steady sales
activity. New vehicle sales were up 6-9 percent from a year earlier in
August but are projected to be flat to up slightly in September. Sales
of used cars have been mixed since the last report, while dealers
service departments note some slowing in business. Wholesale and retail
credit conditions remain favorable.

Tourism activity has been steady at a fairly robust level since the
last report, despite hints of weakness in mid-September. A trade
association survey conducted in September indicated that 70 percent of
hoteliers across New York State report that business over Labor Day
weekend was at least as good as in 2011. Similarly, occupancy rates and
room rates at Buffalo hotels are reported to be running well ahead of
2011 levels. Manhattan hotel occupancy rates were little changed at
slightly over 90 percent in August, with room rates continuing to run a
modest 2 percent ahead of a year ago. Anecdotal reports for September
suggest that business remained strong in the early part of the month but
tapered off a bit at mid-month. Similarly, weekly attendance and
revenues at Broadway theaters were running ahead of comparable 2011
levels in August and early September but slipped well below year-earlier
levels for the third week of the month. Finally, consumer confidence
fell in August and was little changed at a low level in September,
according to the Conference Boards monthly survey of residents of the
Middle Atlantic states (NY, NJ, Pa).

Construction and Real Estate

Residential real estate across the District has continued to
improve. Housing markets in metropolitan Buffalo reportedly flattened
out in August but picked up sharply in September. Northern New Jerseys
housing market has shown further modest signs of improvement, and there
has been a sustained pickup in rental apartment construction, as
builders appear to see a persistent shift toward renting. Home prices
across northern New Jersey appear to recovering graduallyan industry
expert notes that foreclosures and distress sales are no longer pushing
down prices of other properties, though they are dampening any increase.
Manhattans co-op and condo market has remained stableboth in terms of
sales activity and prices. The upper end of the market has been
relatively strong, partly fueled by foreign buyers. Market conditions
are reported to have strengthened in Brooklyn and especially Queens in
the third quarter, while Long Islands housing market is weak but
stabilizing. New York Citys apartment rental market remains robust:
rents have decelerated a bit in recent months but are still estimated to
be rising at a 6-8 percent annual pace.

Commercial real estate markets showed signs of softening in the
third quarter. In particular, office vacancy rates in metropolitan
Syracuse, Albany, northern New Jersey, Westchester and

Fairfield counties climbed to their highest levels in a number of
years, while asking rents were flat to down slightly. Office vacancy
rates also edged up in Manhattan, after drifting down over the first
half of 2012. Sluggish leasing demand from financial and other firms is
reported to be more than offsetting strong leasing demand from tech
firms. A substantial amount of office space is scheduled to come onto
the Lower Manhattan market in early 2013.

Industrial markets have strengthened: vacancy rates have declined
modestly since the beginning of the year in northern New Jersey,
Westchester and Fairfield counties, and the Buffalo and Syracuse areas;
but rates have held steady in Long Island and metropolitan Rochester.
Industrial rents have begun to rise modestly across most of the District
for the first time in a number of years.

Other Business Activity

Manufacturers across the District indicate some further softening
in general conditions since the last report, whereas contacts in most
other sectors report that activity held steady. Both manufacturers and
other contacts report little change in input price pressures since the
last report, though a number of manufacturing contacts say they plan to
hike selling prices in the months ahead.

Labor market conditions across the District have been tepid since
the last report. Business contacts generally indicate that they have
scaled back hiring activity in recent months, and almost as many
business contacts say they plan to reduce as increase employment in the
months ahead. A major New York City employment agency specializing in
office jobs reports that hiring activity remained sluggish after Labor
Daya time when recruitment activity typically picks up. Moreover, the
weakness is reported to be fairly broad-based, though most evident in
the finance sector.

Financial Developments

Small to medium sized banks in the District report increased demand
for all loan types except consumer loans, where demand was unchanged.
Bankers also report increased demand for refinancing. Bankers report
some tightening in credit standards for the household sector: roughly
one in five bankers report tighter standards for consumer loans and
residential mortgages, while no respondent reports easing standard in
any individual loan category. Respondents indicate a decrease in spreads
of loan rates over costs of funds for all loan categories except for
consumer loans. The decrease in spreads was most prevalent in commercial
mortgages. Respondents also indicate a decrease in the average deposit
rate. Finally, bankers report some decrease in delinquency rates for
commercial and industrial loans and commercial mortgages but no change
for consumer loans and residential mortgages.

** MNI Washington Bureau: 202-371-2121 **

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