Beige Book Report: New York
August 29, 2012
The Second District's economy has continued to expand at a modest pace since the last report. Despite some pickup in commodity price pressures, prices of finished goods and services have generally been stable. There have been scattered signs of softening in the labor market: while manufacturers continue to add workers, firms in other industries have scaled back hiring. A growing number of contacts in both manufacturing and other sectors report some softening in business conditions. Retailers, however, report generally favorable results: auto dealers note that sales remain fairly strong, and non-auto retailers report some recent improvement. Tourism activity has remained strong. Residential real estate markets have shown signs of improvement, and Manhattan's office market picked up slightly. Finally, bankers report increased loan demand, no change in credit standards, and further declines in delinquency rates.
Consumer Spending
Retailers report that sales activity has firmed somewhat since the last report. Two major retail chains report that sales in the region were on plan in July and ahead of plan in early August. Similarly a major retail mall in upstate New York reports some firming in sales, as well as shopper traffic, in July and early August, following lackluster business in May and June. Retail prices continue to be described as steady--including apparel prices, which had previously been expected to drift down with the retreat in cotton prices earlier this year. Stores in New York City have performed on par or modestly better than those in the rest of the region. Inventories are generally said to be at or slightly above desired levels.
Auto dealers in upstate New York continue to report strong sales. New vehicle sales are characterized as particularly robust--up 14 percent from a year earlier--in the Rochester area. Buffalo-area dealers are seeing gains of about 7 percent. Sales of used cars and business at dealers' service departments are also described as fairly robust. Wholesale and retail credit conditions remain favorable.
Tourism activity has been mixed but generally strong since the last report. Hotels occupancy rates in the Albany and Buffalo areas have climbed and are well ahead of year-earlier levels. New York City hotels indicate that revenues per room were up roughly 6 percent from a year ago in June but up by a more modest 2 percent in July, as growth in room rates slowed and occupancy rates leveled off at close to 90 percent. With a 2-3 percent increase in the total number of hotel rooms in the city, this suggests continued fairly brisk growth in tourism activity. Attendance at Broadway theatres picked up in July and remained robust in early August, running 4-5 percent ahead of a year earlier, while revenue was up roughly 10 percent, reflecting higher ticket prices.
Construction and Real Estate
Housing markets across the District have shown further signs of modest improvement since the last report. The housing market in the Buffalo area continued to show strength through mid-July, though activity has dropped off in recent weeks--to a greater extent than the seasonal norm. Northern New Jersey's housing market has bottomed and is showing scattered signs of improvement, according to an industry expert. This contact also maintains that internal market fundamentals are favorable: low and declining inventories, pent up demand, high affordability and a steady reduction in the foreclosure pipeline Manhattan's co-op and condo market has been fairly active since mid-year, relative to the normal seasonal pattern of slowing. In particular, there has been strong activity at the very high end (for "trophy properties") and also for entry-level apartments, driven in part by low mortgage rates. There has been more significant improvement reported in Brooklyn and especially in Queens, where an inventory glut has evaporated surprisingly quickly, according to one contact. New York City apartment rents have continued to rise across all segments, and Albany's rental market has strengthened noticeably, with rents running 7 percent higher than a year ago.
Manhattan's office market strengthened somewhat in July, as leasing activity picked up and vacancy rates edged down. Asking rents for Class A office space rose modestly and continued to run more than 10 percent ahead of a year earlier. A real estate contact also reports that retailers have started leasing more ground-floor space in apartment buildings that have recently reached full occupancy.
Other Business Activity
Businesses across the District indicate some softening in general conditions since the last report. A rising number of contacts in both manufacturing and other sectors indicate a recent pullback in business activity. While some pickup in input price pressures has been noted in recent weeks and further increases are anticipated in the months ahead, most report steady selling prices.
Labor market conditions across the District have been mixed, but somewhat weaker, on balance, since the last report. While manufacturers report that they continue to add workers, on net, firms in other sectors indicate that they have cut back on hiring. Moreover, both manufacturers and non-manufacturing firms recently scaled back their near term hiring plans. Separately, a major New York City employment agency specializing in office jobs reports that hiring activity was even more sluggish in July and early August than is usual for the this time of year. A contact in the securities industry reports that there has been neither any significant increase in layoffs nor much hiring.
Financial Developments
Small- to medium-sized banks in the District report a noticeable pickup in overall loan demand. Particularly widespread increases in demand were reported for both residential and commercial mortgage loans, while demand for consumer loans was little changed. As was the case in the last report, demand for commercial & industrial loans decreased. Bankers also indicate steady demand for refinancing. Virtually all 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 categories--particularly commercial & industrial loans and commercial mortgages. Respondents also note continued declines in the average deposit rate. Finally, bankers report declining delinquency rates, particularly on commercial & industrial loans and residential mortgages.