December 4, 2013
Economic growth in the Second District has continued at a moderate pace since the last report. Contacts report that cost pressures have abated slightly, while selling prices are steady to up moderately. Service sector firms generally indicate a pickup in activity, while contacts in the manufacturing sector report that it has leveled off. Overall, there were no reports of any major disruptive effects from the federal government shutdown. Labor market conditions have continued to improve modestly since the last report, and there has been some upward pressure on wages. General merchandise retailers indicate that sales picked up a bit in October and were somewhat ahead of plan, with favorable trends continuing into November. New auto sales have continued to be robust, whereas used car sales remain soft. Tourism activity has remained fairly strong in recent weeks. Both residential and commercial real estate markets have been mixed since the last report. Finally, banks report some weakening in loan demand from the household sector, but increased demand for commercial mortgages and loans, little change in credit standards, and steady to declining delinquency rates.
Consumer Spending
Retailers report that sales have improved since the last report and have generally been ahead of plan. One major retail chain reports that sales were on plan in October and looking stronger in early November, while another chain indicates that they have been above plan throughout. New York City stores have continued to out-perform slightly those in the rest of the region. Contacts at major malls in upstate New York note that sales picked up somewhat in October and early November and are running roughly on par with 2012 levels. Inventories are said to be at desired levels. Retail contacts widely describe the pricing environment as more promotional than in 2012.
New auto sales are characterized as quite strong: auto dealers in both the Buffalo and Rochester areas report that new vehicle sales were up 20 percent or more from a year earlier in October, with strength projected to continue into November. Sales of used automobiles, in contrast, have remained soft. Wholesale and retail credit conditions for auto purchases are again reported to be in good shape.
Tourism activity has remained strong since the last report. Manhattan hotels report that occupancy rates remained high in October, with room rates up moderately from 2012 levels. Hotels in the upper Hudson Valley also report that business has been strong. Attendance and revenues at Broadway theaters have continued to trend up in October and into early November, as more shows have opened. While year-earlier comparisons are distorted due to Sandy disruptions last November, recent levels look robust for this time of the season.
Consumer confidence in the region weakened in October. The Conference Board's survey of residents of the Middle Atlantic states (NY, NJ, Pa) shows confidence retreating from a nearly six year high, while Siena College's survey of New York State residents indicates a more pronounced drop, to a nearly two-year low.
Construction and Real Estate
Residential real estate markets in the District have been mixed since the last report. Contacts in western New York State continue to describe market conditions as robust in October and into early November: sales volume has been exceptionally strong, prices continue to rise, and there are ongoing reports of multiple offers and price wars. Sales activity in New York City's co-op and condo market, on the other hand, has retreated in the 4th quarter, following an exceptionally strong third quarter, and prices have leveled off. While there is a reasonable amount of new development at the high end of the market, inventories across the rest of the market remain lean. Manhattan's rental market has also softened slightly, with rents running modestly lower than a year earlier. A contact in New Jersey's housing industry reports some seasonal slowing in activity in October, suggesting some leveling off in market conditions. Single-family construction in the state remains weak, though there is a fair amount of multi-family development, as well as renovation and alteration work. A large overhang of properties in foreclosure is said to be holding back prices and dissuading some owners from selling.
Commercial real estate markets have also been mixed thus far in the fourth quarter. In Manhattan, the outer boroughs, and Long Island, office vacancy rates continue to drift down, while asking rents continue to rise--though only modestly for Class A properties. Northern New Jersey's office vacancy rate is little changed at a high level, while asking rents are flat. However, in the Westchester/Fairfield markets and across upstate New York, vacancy rates climbed to multi-year highs. Industrial markets have also been mixed, with conditions strengthening noticeably in downstate New York and northern New Jersey, but slackening across upstate New York.
Other Business Activity
On balance, the labor market has been steady to slightly stronger since the last report. Overall, businesses indicate that they are increasingly likely to add workers in the months ahead--particularly manufacturers. One major employment agency reports that the government shutdown in October took some momentum out of hiring, but that business has been steady in recent weeks. Another agency indicates little change in the market, with somewhat less of a seasonal slowdown than expected thus far--possibly due to mild weather. Salary offers have reportedly increased slightly. One employment agency contact observes that companies are increasingly inclined to hire long-term, full-time workers, as opposed to temps.
Manufacturing firms in the District report that activity has leveled off in recent weeks. But businesses in other sectors report increasingly widespread increases in activity. Both groups continue to express fairly widespread optimism about the near-term outlook. Businesses generally report some easing in input price pressures; manufacturers report that their selling prices remain steady, though service-sector firms overall report moderate price hikes, and a sizable number plan at least some price hike in the months ahead.
Financial Developments
Small to medium sized banks across the Second District report decreased demand for consumer loans and residential mortgages but increased demand for commercial mortgages and commercial & industrial loans. Bankers also report a decrease in demand for refinancing. Respondents indicate that credit standards were unchanged across all loan categories but note a decrease in spreads of loan rates over costs of funds for all loan categories--particularly commercial mortgages. Respondents report no change in the average deposit rate. Finally, bankers report continued declines in delinquency rates for all loan categories except for residential mortgages, where rates have leveled off.