WASHINGTON (MNI) – The following is the text the New York section
of the Federal Reserve’s Beige Book report on current financial
conditions released Wednesday:
SECOND DISTRICT–NEW YORK
The Second District’s economy has continued to expand since the
last report, though at a somewhat diminished pace. Labor market
conditions have continued to improve modestly. Retail sales have held
steady at favorable levels since the last report. Consumer confidence
reports have been mixed. Tourism activity picked up in April but tapered
off a bit in early May. Commercial real estate markets have been
relatively stable. The residential purchase market has been steady to
somewhat softer, but the rental market has continued to improve; new
residential construction remains low. Finally, bankers report further
weakening in consumer loan demand, tighter credit standards on the
commercial sector, and higher delinquency rates on consumer loans but
somewhat lower delinquencies in other loan categories.
Consumer Spending
Retail sales have held steady since the last report and are running
modestly above comparable 2010 levels. Sales were somewhat ahead of
plan, despite unseasonably cool and wet weather, which likely had a
small negative effect on spending. Two contacts-a major retail chain and
a large mall in upstate New York-report that sales weakened in the first
half of May, after a robust April. Inventories are reported to be in
good shape. Selling prices have been steady overall, though some
contacts describe the pricing environment as more promotional than a
year ago. One major retail chain indicates that prices have been stable
during the first half of the year; yet moderate price increases are
planned for the second half of 2011-largely for cotton-based
merchandise. Auto dealers in upstate New York report that sales of new
vehicles have cooled somewhat since the first quarter but remain at
fairly high levels, up moderately from a year earlier. Some of the
slowing in sales is attributed to supply disruptions related to the
tsunami in Japan. One local auto dealers’ association reports an
exceptionally low inventory of used vehicles, which has hampered sales
volume and pushed prices up. Retail credit conditions continued to
improve, while wholesale credit conditions were mixed.
Consumer confidence surveys have given mixed results. Siena College
reports that consumer confidence among New York State residents fell to
its lowest level of the year in April-largely attributed to surging food
and energy prices. In contrast, the Conference Board reports that
consumer confidence among residents of the Middle Atlantic states (NY,
NJ, Pa) surged in April, reaching its highest level since late 2007; the
rise was largely driven by improved perceptions of job availability.
Tourism activity in New York City strengthened in April, though
there were signs of some pullback in May. Occupancy rates at Manhattan
hotels moved up by more than the seasonal norm in April, and room rates
accelerated, running 5-10 percent higher than a year earlier. Partly due
to a spate of new show openings, Broadway theaters report that both
attendance and total revenues surged in April and were running 10 to 15
percent ahead of a year earlier, after a sluggish March,. Attendance and
revenues slipped in May, although both were still up from a year
earlier.
Construction and Real Estate
Housing markets across the District have been mixed since the last
report: the home purchase market has been steady to somewhat softer, but
the rental market has continued to strengthen. Buffalo-area Realtors
report steady market conditions, with sales activity and pending sales
down from a year earlier but prices up roughly 5 percent. More broadly,
home prices have been running moderately ahead of a year earlier across
most of upstate New York, despite pockets of weakness in metropolitan
Rochester and Albany. However, prices in the New York City metropolitan
area, including northern New Jersey and southwestern Connecticut, have
drifted down slightly and are modestly lower than a year ago. An
authority on New Jersey’s housing industry reports that sales of
existing homes have slowed since the last report, and new home sales
remained depressed. A sizable inventory of foreclosed properties-roughly
equal to nine months of sales-is reported to be putting downward
pressure on home prices overall. However, low volume and a sizable
incidence of distressed sales make it difficult to gauge price trends in
northern New Jersey. Activity in New York City’s co-op and condo market
was mixed but generally stable since the last report, with Manhattan,
Brooklyn and Bronx holding steady-in terms of both prices and sales
activity. Some softening was evident in Queens and Staten Island. Long
Island’s market has been stable, though conditions have weakened in the
Hamptons, where sales activity is off, especially at the high end.
In contrast with the sluggish purchase market, rental markets have
performed fairly well, particularly in New York City: Manhattan rents
are reported to be up roughly 6 percent from a year ago. Moreover, when
the widespread withdrawal of landlord concessions is factored in, the
rise in effective rents has been steeper. Rental vacancy rates have
drifted down. Contacts in both New York City and northern New Jersey see
relatively little new residential construction, and note that most new
and proposed development is for rental housing.
Commercial real estate markets have been largely steady since the
last report. Office markets showed signs of modest improvement in New
York City, Long Island, and most of upstate New York, as vacancy rates
edged down while asking rents were steady to up slightly. However,
market conditions weakened somewhat in northern New Jersey, Westchester
and Fairfield Counties, and in the Albany area. Industrial vacancy rates
rose in Long Island but were little changed in other markets. In much of
the District, asking rents on industrial properties, which had been
declining through the end of 2010, have leveled off or moved up modestly
in recent months.
Other Business Activity
Reports from business contacts give a mixed picture of the labor
market. A major New York City employment agency reports that, after a
robust March, hiring activity weakened noticeably in April and early
May, though it picked up again in the third week of May. Still, the
supply of available workers has dwindled further, and more workers are
testing the water and leaving current jobs for new ones. Starting
salaries have remained steady and below prerecession levels. Law firms,
in particular, have started hiring more, while financial sector hiring
has been stable. A contact in the securities industry reports that the
jobs being added there tend to be mostly in support areas, such as legal
and compliance, as opposed to revenue-generating areas.
Non-manufacturing firms broadly indicate that both business and
hiring activity have been steady to modestly higher since the last
report. Contacts have become slightly less optimistic about the near
term outlook and have scaled back hiring plans somewhat.
Nonmanufacturing firms report that cost pressures remain widespread but
have not broadened since the last report. Manufacturing firms in the
District report that business activity was generally steady in April and
early May. Contacts report that they are adding workers, on net, and
plan to continue to do so in the months ahead. Manufacturers also note
increasingly widespread price pressures, and roughly two in five say
they plan to hike their selling prices in the months ahead. A
trucking-industry contact reports that shipping activity has shown no
sign of slipping, despite the recent surge in diesel prices.
Financial Developments
Reports on loan demand were mixed: small to medium sized banks
indicate a decrease in demand for consumer loans, an increase in demand
for commercial mortgages, and no change in the demand for residential
mortgages and commercial and industrial loans. Respondents indicate no
change in credit standards for the household sector but a tightening of
standards for commercial loans and especially commercial mortgages.
Bankers report a decrease in spreads of loan rates over costs of funds
for all loan categories-particularly on residential mortgages. There
were also fairly widespread decreases in deposit rates. Finally,
delinquency rates rose for consumer loans but decreased for commercial
mortgages and, to a lesser extent, on commercial and industrial loans.
Delinquency rates on residential mortgages were unchanged.
** Market News International Washington Bureau: 202-371-2121 **
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