WASHINGTON (MNI) – The following is the text of the Second District
assessment in Wednesday’s Beige Book survey of regional economic
conditions:

SECOND DISTRICT – NEW YORK

Growth in the Second District’s economy has picked up somewhat
since the last report. Labor market conditions have been stable to
slightly stronger in recent weeks, and a sizable number of contacts say
they plan to add workers in the months ahead. While consumer prices
generally remain steady, business contacts in a number of industries
indicate rising cost pressures. Manufacturers report steady improvement
in business conditions. Most retailers and auto dealers describe sales
as steady but strong in February and the first few weeks of March.
Tourism activity has been mixed but generally strong since the last
report, with bookings for the months ahead described as robust. Home
sales activity has continued to strengthen since the last report, though
prices have been steady to somewhat lower; rental markets have continued
to improve, and there has been a pickup in rental multi-family
construction. Commercial real estate markets remained steady in the
first quarter of 2012. Finally, bankers report increased loan demand, no
change in credit standards, and the most widespread declines in
delinquency rates in a number of years.

Consumer Spending

Retailers report that sales were mixed but mostly steady and strong
in February and the first few weeks of March. One major retail chain
reports that sales were above plan and running more than 5 percent ahead
of year earlier in both February and March, led by strength in spring
apparel and accessories. Retail contacts in upstate New York report that
sales in recent weeks have been strong and running roughly on par with a
year earlier, which was also characterized as a very strong period, with
continued strong demand from Canadian shoppers. However, another major
retailer indicates that same-store sales were below plan and down
considerably from 2011 levels. Retail prices continue to be mostly
stable, but one major chain notes declining costs for apparel
merchandise. Inventories are generally reported to be at desired levels.

Auto dealers in upstate New York report that sales activity picked
up in February and has remained strong in the first few weeks of March.
Sales of new vehicles were up 4-7 percent from a year earlier in
February and remained fairly strong in March. Inventory stock-outs are
no longer a factor holding down sales. Business generally remains brisk
at dealer service departments, although dealers in the Buffalo area
report that unseasonably mild weather has reduced demand for
winter-oriented service. Wholesale and retail credit conditions remain
favorable.

The Conference Board’s latest survey of residents of the Middle
Atlantic states (NY, NJ, PA) shows confidence slipping moderately in
March, though it remains well above its lows of last October. Tourism
activity has been fairly robust since the last report, and hotel
bookings for upcoming months look strong as well. Albany area hotels
report rising occupancy rates in February. New York City hotels report
that total revenues per room were up roughly 6 percent from a year ago
in February and March, with particular strength in the last couple of
weeks. All of the increase reflects higher occupancy rates, as room
rates have leveled off. Moreover, an industry contact notes that advance
bookings are very strong and that room rates are poised to rise.
Attendance at Broadway theaters was fairly robust in February but has
tapered off in March, largely because fewer shows are running than at
this time last year; however, revenues continue to run ahead of 2011
levels, reflecting a substantial rise in ticket prices.

Construction and Real Estate

Housing markets across much of the District appear to have picked
up since the last report, while rental markets continue to firm. Home
sales are reported to be on the upswing in northern New Jersey, though
prices are steady to declining, largely due to more distressed
properties coming to market. One industry expert notes surprising
strength in new multi-family construction in New Jersey — almost
entirely rental units — thus far in 2012; this segment now accounts for
well over 50 percent of all new homebuilding, which is said to be
unprecedented. Apartment rental markets in both New York City and
northern New Jersey continue to firm, with inventories tight and rents
rising steadily. A major New York City appraisal firm notes that
Manhattan’s co-op and condo market has firmed since mid-February: while
prices remain flat, sales have picked up — especially for studio and
1-bedroom co-ops — and new contract activity is estimated to be running
7 percent ahead of a year earlier. Conditions in the outer boroughs have
been somewhat softer. Real estate contacts in western New York State
report continued gradual improvement in home sales activity but note
some downward pressure on prices.

Commercial real estate markets have been mixed but, on balance,
steady since the last report. Office vacancy rates in New York City and
on Long Island declined in the first quarter, while rents have risen
moderately. By contrast, office markets have slackened in northern New
Jersey, Westchester and Fairfield counties, and in Rochester. Most other
metro areas in upstate New York have seen steady to slightly declining
vacancy rates. Industrial markets across the District have been fairly
stable.

Other Business Activity

A major New York City employment agency specializing in office jobs
reports that hiring activity has held steady since the last report.
Legal hiring has picked up somewhat but for specific positions with
specialized qualifications, while finance-sector hiring remains modest.
More broadly, though, a sizable number of manufacturers and a growing
number of business contacts in other sectors say that they plan to step
up hiring activity in the months ahead.

Looking at business conditions more generally, manufacturers across
New York State report continued improvement since the last report, while
a growing proportion of non-manufacturing contacts report increases in
business activity. Business contacts in both manufacturing and other
sectors report that input costs are rising; however, selling prices are
reported to be holding steady, on balance.

Financial Developments

Small to medium-sized banks in the District report increased loan
demand in all categories, but particularly for commercial mortgages.
Bankers indicate increased demand for refinancing but to a less
widespread degree than in recent months. Credit standards are reported
to be little changed across all loan categories. Respondents note a
decrease in spreads of loan rates over the cost of funds for all loan
categories — particularly for commercial and industrial loans where
well over two in five bankers report lower spreads, while none report
higher spreads. Respondents also indicate some decline in average
deposit rates. Finally, bankers report decreases in delinquency rates
for all loan categories. Moreover, the reported decreases are more
widespread among our banking contacts than at any time since the late
1990s.

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

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