WASHINGTON (MNI) – The following is the text of the New York
section of the Federal Reserve’s Beige Book report on current financial
conditions released Wednesday:
SECOND DISTRICT–NEW YORK
The Second District’s economy appears to have expanded at a modest
pace since the previous report. Business contacts in most industries
report stable to improving conditions and express widespread optimism
about the near-term outlook. Labor market conditions have been mixed but
generally steady, on balance: T here has been little or no net hiring in
the financial and manufacturing sectors, but a slight pickup in some
other sectors. Retail sales are characterized as relatively strong in
early 2011, despite inclement weather, and consumer confidence has
continued to improve. However, tourism activity has shown signs of
slowing by more than the seasonal norm in early 2011. Commercial real
estate markets remain fairly slack: The market for office space has been
generally stable, while the market for industrial space has softened
somewhat. Housing markets have been mostly stable, with scattered signs
of improvement. Finally, bankers report strengthening demand for
commercial loans and mortgages but weaker demand for home mortgage
loans; they also indicate little change in credit standards and steady
to lower delinquency rates.
Consumer Spending
Retailers generally report continued strength in sales in early
2011. One major retail chain notes that sales were ahead of plan in
January and on plan in February but that New York City underperformed
the rest of the region-possibly due, in part, to the heavy snowfall
during January, which is estimated to have reduced sales by about 1
percent. Retail contacts in upstate New York also report that sales have
been brisk since the beginning of the year, despite a brief lull in
early January, with one Buffalo-area contact indicating that sales
continue to be buoyed by a steady flow of Canadian shoppers. Inventories
are generally reported to be at desired levels, and the pricing
environment continues to be characterized as highly promotional.
Auto dealers in upstate New York report that sales of new vehicles
continued to trend upwards in early 2011, as lean inventories of used
cars have nudged up prices and spurred demand for new models. Dealers in
the Rochester and Buffalo areas report that sales of new autos were up
10-20 percent from a year ago in January, with reports of particular
strength for domestic brands. Both retail and wholesale credit
conditions continued to improve. Service departments also report fairly
brisk business, aside from a brief slow patch in early January. One
industry contact notes that a recent auto show in western New York State
drew strong traffic. Dealers are generally optimistic about the sales
outlook for 2011.
Confidence surveys suggest that consumers are in somewhat better
spirits. Siena College’s survey of New York State residents shows
confidence surging to its highest level since 2007, with good gains both
upstate and downstate. The Conference Board reports that consumer
confidence among residents of the Middle Atlantic states (NY, NJ, Pa)
edged down from a 3-year high in January but remains near the upper end
of its recent range.
On a less positive note, tourism activity in New York City
registered more than a normal seasonal slowdown since the beginning of
the year, though the overall level of activity remains fairly high.
Occupancy rates at Manhattan hotels in January were somewhat lower than
a year earlier, while revenues held steady, reflecting moderate
increases in room rates. In the first half of February, however,
revenues have been running a bit lower than comparable 2010 levels-if
this persists for the full month, it would be the first 12-month decline
in revenues since 2009. Broadway theaters report that, after a brisk
December and early January, both attendance and total revenues tapered
off noticeably around mid January and have been running roughly 10
percent lower than a year earlier over the past few weeks-in part
because a number of shows have closed.
Construction and Real Estate
Housing markets across the District have been generally stable
since the previous report, with pockets of mild improvement. An
authority on New Jersey’s housing industry reports that the market has
been performing slightly better in early 2011, as the negative aftermath
of last year’s homebuyer tax credit appears to have worn off. While
there is still a sizable supply of existing homes on the
market-including a large number of distressed properties-the inventory
of available new homes in northern New Jersey is reported to be very
low. The residential real estate market in metropolitan Buffalo also
appears to have recovered to more normal levels of activity after
several months of sluggish performance. There are signs of gradual
improvement in Manhattan’s apartment rental market: Rents continued to
rise at a moderate pace, the inventory of available units is described
as tight, and fewer landlords are reported to be offering concessions
than last year. Conditions in Manhattan’s co-op and condo market, on the
other hand, appear to be holding steady: A major appraisal firm reports
that prices are holding steady across the board and notes that, while
contract activity fell noticeably in January, harsh weather is seen as
the culprit, and transaction activity appears to be rebounding in
February.
Commercial real estate markets generally remain slack-the market
for office space has been mixed but mostly stable in recent weeks, while
the industrial market has shown further signs of softening. In New York
City, office leasing activity has remained fairly brisk, but this has
been more than offset by additional space coming onto the market; as a
result, vacancy rates edged up in January. Asking rents on Class A
properties did edge up in January but were still down nearly 10 percent
from a year earlier. Elsewhere across the region, office vacancy rates
edged down in northern New Jersey and across much of upstate New York
but rose modestly in Long Island and in Westchester and Fairfield
Counties. Industrial markets showed further signs of softening across
much of the District. Long Island’s industrial vacancy rate rose to its
highest level in more than a decade, and rents drifted down. In northern
New Jersey, industrial vacancy rates held steady, but rents slipped to
multi-year lows. Across upstate New York and in Fairfield County,
vacancy rates and rents were little changed.
Other Business Activity
Reports from business contacts generally suggest that firms tend to
be adding workers, on net, and plan to increase staffing levels in the
months ahead. A major New York City employment agency reports that labor
market conditions are improving gradually and that hiring activity has
picked up somewhat since the previous report. Financial sector hiring is
reported to be up marginally-largely in the areas of trusts and
estates-and legal hiring has picked up a bit from very low levels. A
securities industry contact reports that layoffs continue but at a
subdued pace; still, there is said to be little or no net hiring in this
industry. Cash bonuses are reported to be down somewhat from a year ago,
though overall compensation is seen as little changed. Most
manufacturing contacts, however, indicate that they are currently
keeping employment levels steady, though some net hiring is anticipated
in the months ahead.
Financial Developments
Bankers report a decrease in the demand for residential mortgages,
but increased demand for commercial and industrial loans and especially
commercial mortgages; demand for consumer loans is reported to be little
changed. Bankers indicate no change in the demand for refinancing.
Respondents note some tightening of credit standards for commercial and
industrial loans, on net, but no change in standards for the other loan
categories. Bankers report no change in spreads of loan rates over costs
of funds across all loan categories; spreads had been narrowing towards
the end of 2010, based on the prior few surveys. Respondents indicate
that average deposit rates have been steady to declining. Finally,
bankers report a decrease in delinquency rates for commercial mortgages
but no change in delinquencies for the other loan categories.
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]