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

SECOND DISTRICT–NEW YORK

The Second District’s economy has grown at a somewhat faster pace
since the last report, led by brisk holiday-season spending. Labor
market conditions, as well as prices, have remained generally stable.
Manufacturers report modestly improved general business conditions and
steady employment since the last report, along with increased optimism
about the near-term outlook. Retailers generally characterize holiday
season spending as robust, particularly in the final days before
Christmas and right after. Auto dealers report that sales have remained
strong since the last report. Tourism activity has held steady at a high
level. Conditions have generally remained stable in the housing market,
though the rental market has continued to improve. Commercial real
estate markets have been stable to moderately stronger in late 2011.
Finally, bankers report increased loan demand, steady to somewhat
tighter credit standards, and lower delinquency rates across the board.

Consumer Spending

Retailers generally characterize holiday-season spending as strong
and most report that sales were on or above plan. A trade association
survey of retailers across New York State points to robust spending,
particularly in the final week before Christmas and on the day after;
most contacts indicated that sales were at least as strong as in 2010,
led by electronicsparticularly video games and consoles. One large
retail chain reports that November-December sales were above plan and up
moderately from a year earlier, while another major chain indicates that
sales were down from 2010 levels but still roughly on plan. Both
contacts note that unseasonably mild weather hampered sales of outerwear
and other seasonal apparel. However, two major malls in upstate New York
say that mild weatheralong with brisk demand from Canadian
shopperscontributed to strong sales in November and early December. A
number of contacts also note exceptional strength in on-line sales, with
some reporting year-over-year gains in excess of 40 percent. Retail
prices are reported to be generally stable.

Auto dealers in upstate New York report that sales activity
continued to be robust in November and early December, running well
ahead of comparable 2010 levelsparticularly for used vehicles.
Inventories have risen along with sales but remain tight for some of the
more popular models. Wholesale and retail credit conditions remain
favorable.

Consumer confidence has rebounded from its October lows. The
Conference Board’s survey of residents of the Middle Atlantic states
(NY, NJ, PA) shows consumer confidence rising sharply in both November
and December, back up to the levels seen last spring. Results from Siena
College’s November survey of New York State residents (latest available)
shows consumer confidence rebounding moderately. Tourism activity has
held generally steady at a strong level since the last report. New York
City hotels report that occupancy rates continued to run at just over 85
percent in November and the first few weeks of Decemberup moderately
from a year earlier. Room rates were up 2-3 percent from a year earlier,
and total revenues per room were up about 6 percent, though total
revenues in the local hospitality industry are up considerably more due
to an increased number of hotel rooms. On a more negative note, though,
Broadway theaters report that attendance continued to run roughly 5
percent below year-ago levels in December, while revenues fell below
comparable 2010 levels for the first time since the August hurricane.

Construction and Real Estate

Residential rental markets continue to strengthen, while real
estate sales have shown little change since the last report and new
development activity continues to be sluggish. New York City’s rental
market remains tight: rents continue to rise, as the inventory of
available units remains lean. Manhattan co-op and condo prices were
little changed in the fourth quarter, while sales activity slowed from
its fairly brisk third quarter pace. Market conditions were reported to
be similar in Brooklyn but a bit softer in the other boroughs and on
Long Island. On a more positive note, one industry expert in New Jersey
sees improved fundamentals in the housing market and foresees a pickup
in market conditions in 2012. Real estate contacts in other parts of the
District also note some increase in optimism among developers.

Commercial real estate markets have been steady to somewhat
stronger since the last report. New York City’s office market has picked
up in late 2011, with office vacancy rates edging down and asking rents
rising. There were also modest signs of improvement in Westchester and
Fairfield counties and in the Albany area, whereas office markets in
northern New Jersey and western New York State appear to have slackened
modestly. Industrial leasing markets were generally steady overall:
conditions firmed in Long Island but showed some signs of softening
across upstate New York; in the rest of the District, conditions were
little changed.

Other Business Activity

A major New York City employment agency reports that hiring
activity has slowed somewhat since October, particularly in the
financial services sector, but notes that it is difficult to gauge the
underlying climate during this typically slow season. Contacts at major
retail chains indicated that they hired more seasonal workers this year
than last. More broadly, both manufacturers and service-sector firms
continue to report that employment levels at their firms remain steady,
on average, though a growing number of manufacturing contacts across New
York State plan to hire more workers in the months ahead.

Manufacturers across New York State report that general business
conditions improved since the last report, and respondents have grown
considerably more optimistic about the near-term outlook. Both
manufacturers and other firms report that their selling prices remain
flat, though a growing number expect to raise prices in the months
ahead. Separately, a contact in the trucking industry reports that
shipping tonnage (volume) has picked up considerably in recent months
and was up 6 percent from a year earlier in November.

Financial Developments

Bankers report an increase in demand for all loan categories except
consumer loans, where demand held steady. The increase was most
prevalent for commercial mortgages where four times as many bankers
reported rising than falling demand. Respondents also indicate
widespread increases in demand for refinancing. Bankers’ responses
suggest some tightening of credit standards for commercial and
industrial loans, but no change for the other loan categories. No banker
reported an easing of standards in any category. Respondents note a
decrease in spreads of loan rates over costs of funds for all loan
categories. Bankers also indicate widespread decreases in the average
deposit rate. Delinquency rates are reported to have decreased for all
loan categories. The improvement was most prevalent in commercial and
industrial loans, where nearly three times as many respondents reported
lower than higher delinquencies.

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

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