–Labor Market Has Continued to Improve

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

SECOND DISTRICT — NEW YORK

Growth in the Second District’s economy has slowed since the last
report, though labor market conditions have continued to improve. Price
pressures have receded further in both manufacturing and other industry
sectors, and retail prices have been stable. Non-manufacturing contacts
generally report that conditions have held steady in recent weeks, while
manufacturers report flat to weaker activity. Retailers generally report
weaker results for May and June, but auto dealers indicate that sales
activity was fairly robust; tourism activity has continued to be steady
and strong. Home sales markets have shown signs of improvement, while
rental markets have remained firm; however, commercial real estate
markets have slowed modestly. Finally, bankers report a leveling off in
loan demand, no change in credit standards, and further declines in
delinquency rates on commercial loans and mortgages.

Consumer Spending

Retailers report that sales activity has been somewhat softer since
the last report. One major retail chain indicates that sales were down
noticeably from a year earlier, with home goods sales especially weak.
Another major chain reports that sales slowed in June and were running
somewhat below plan but still up marginally from a year earlier;
however, some improvement was noted during the first few days of July.
Retail contacts in upstate New York report that sales were mixed in May
but picked up in June, again buoyed by Canadian shoppers. Retail prices
continue to be described as steady. Inventories are generally said to be
at or slightly above desired levels.

Auto dealers in upstate New York report positive results. Sales of
new vehicles were up noticeably from a year ago in May and are projected
to be up modestly in June. Leasing activity and business at dealers
service departments have been robust since the last report. Dealers also
report strong sales and elevated prices for used vehicles. Wholesale and
retail credit conditions remain favorable, though one contact reports
that banks have reined in lending for used vehicles.

Tourism activity has remained robust since the last report. New
York City hotels indicate that revenues per room were up 6-7 percent
from a year ago in May and that very preliminary figures for

June suggest similar gains. This gain reflects increased occupancy
rates, which have been running above 90 percent, as well as 3-4 percent
increases in average room rates. Attendance at Broadway theatres was
generally steady in May and June and up slightly from a year earlier,
while revenue was up more than 10 percent, due to rising ticket prices.

Construction and Real Estate

Housing markets across much of the District have improved somewhat
since the last report, while rental markets have continued to
strengthen. Both the volume of Manhattan apartment sales and selling
prices were steady in the second quarter; sales of smaller apartments
have picked up and account for a growing share of the market. Foreign
buyers continue to be a fairly big component of demand at the higher end
of New York City’s market. Housing markets in Long Island and
Westchester County are reported to have improved in the second quarter:
sales activity has picked up, prices have stabilized, and the inventory
of available homes, though high, has begun to decline. Existing home
sales and prices in northern New Jersey have been flat, hampered by a
glut of distressed properties on the market; but there has been a modest
pickup in new home sales, as well as construction starts. Real estate
contacts in Western New York continue to report robust sales activity
and rising prices, despite tough mortgage conditions. New York Citys
apartment rental market continued to strengthen in the second quarter,
with inventories tight and rents increasingmost notably on smaller and
lower priced apartments.

Commercial real estate markets in and around New York City have
shown some signs of softening since the last report. Office vacancy
rates in Manhattan, though steady for the second quarter overall, rose
in June; new leasing activity slowed, as renewals have accounted for a
growing share of leases. A major brokerage firm notes strong demand from
tech firmslargely in Manhattan’s Midtown South districtbut sluggish
demand from the financial sector. Office vacancy rates in the areas
around ManhattanLong Island, Westchester, and northern New Jerseyedged
up in the 2nd quarter. Retail vacancy rates in New York City and
northern New Jersey rose slightly in the second quarter. Industrial
vacancy rates also edged up in most markets.

Other Business Activity

Contacts across the District indicate that business activity has
leveled off since the last report. Business contacts in both
manufacturing and other sectors indicate little change in general
conditions, but manufacturing contacts in New York State report a
pullback in both new and unfilled orders. In addition, business contacts
in manufacturing and other sectors note a leveling off in input prices
and steady to declining selling prices.

Still, labor market conditions across the District have been steady
to slightly improved since the last report. Both manufacturers and
business contacts in other sectors say that they are adding workers, on
net. A major New York City employment agency specializing in office jobs
reports that hiring activity remains fairly subdued and is little
changed from the spring; however, this contact also notes that the pool
of qualified workers is limited and appears to be dwindling gradually.
Similarly, a trucking industry contact notes that firms are having a
difficult time finding qualified drivers.

Financial Developments

Responses from small- to medium-sized banks in the District suggest
no change in loan demand overall. For specific loan categories, bankers
report increased demand for home mortgage loans, but decreased demand
for commercial & industrial loans. Bankers also indicate steady to
increasing demand for refinancing. The vast majority of contacts report
no change in credit standards across all loan categories. Respondents
indicate continued decreases in spreads of loan rates over costs of
funds for all loan categoriesparticularly commercial & industrial loans
and commercial mortgages. Respondents also note increasingly widespread
declines in the average deposit rate. Finally, bankers report a decrease
in delinquency rates on commercial loans and mortgages but steady rates
on loans to the household sector.

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

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]