June 5, 2013
Economic activity in the Second District has continued to expand at a moderate pace since the last report. Price pressures have abated somewhat among manufacturers, though they remain more widespread in the service sector; contacts continue to report that selling prices are steady to up modestly. Labor market conditions continue to improve, and businesses increasingly report difficulty finding well-qualified workers. Retailers report that sales were tepid in April but picked up in early May, and new automobile sales have remained strong. Tourism activity has been mixed but generally robust. Commercial and residential real estate markets have strengthened further since the last report. Finally, credit conditions improved across the board, with bankers reporting increased loan demand, widespread narrowing in loan spreads, and declining delinquency rates across all loan categories.
Consumer Spending
Retailers report that sales were generally soft in April but strong in early May. One major retail chain reports that same-store sales were somewhat below plan in April--partly due to cool weather--but picked up in early May; another indicates that sales have been running somewhat ahead of plan in both months. Both retailers indicate that their New York City stores performed relatively strongly. Two malls in upstate New York report that business was sluggish in April, partly due to cool weather, but has been brisk in the first half of May; a number of new stores are scheduled to open in the weeks ahead. Inventories remain at desired levels, prices are characterized as steady, and no unusual discounting is reported.
Auto dealers in the Buffalo and Rochester areas report that new vehicle sales were robust in April and early May, running well ahead of comparable 2012 levels. On the other hand, sales of used automobiles softened further and are down from a year earlier; this is partly attributed to better deals on new vehicles. Wholesale and retail credit conditions for auto purchases remain in good shape.
Tourism activity has been mixed but generally fairly robust since the last report. Manhattan hotels report that business was steady at a strong level in April and picked up in early May; occupancy rates have been roughly on par with a year ago, with room rates up 2 to 4 percent. Bookings for Memorial Day weekend are described as very strong. Albany area hotels indicate a pickup in business in April, with occupancy and room rates rising for the first time since last summer. On the other hand, overall attendance at Broadway theaters remains tepid, running 10-20 percent below a year ago in April and the first three weeks of May; this mainly reflects a reduction in the number of shows running. Finally, consumer confidence in the region has been mixed: The Conference Board's April survey of residents of the Middle Atlantic states (NY, NJ, Pa) shows confidence surging to its highest level in more than a year; however, Siena College's survey of New York State residents shows consumer sentiment little changed in April, at its lowest level since then end of 2011.
Construction and Real Estate
Residential real estate markets in the District have strengthened further since the last report. New York City's home sales and rental markets have shown further signs of tightening--on both the sales and rental sides. Both apartment sales prices and transaction volume continue to run well ahead of a year ago in Manhattan and especially in prime areas of Brooklyn, reflecting a low inventory of available units. The rental market also remains tight: rents continue to rise at a roughly 6-7 percent annual rate in Manhattan and at a somewhat faster pace in Brooklyn; the Queens rental market is also seeing a pickup. Long Island, where the housing market had been generally flat until recently, has seen a recent sharp pickup in pending home sales and a drop in the inventory of homes for sale. Northern New Jersey continues to see modest, steady improvement in its housing market. With a relatively low inventory of new homes, prices are rising gradually; however, a sizable overhang of distressed properties is reported to be restraining price appreciation. A real estate contact in western New York reports increasingly strong market conditions: inventories have fallen, bidding wars have become increasingly common, and home prices have been rising.
Commercial real estate markets across the District have also shown signs of improvement thus far in the second quarter. Manhattan's office market has been particularly robust: vacancy rates are little changed, despite a sizable block of new development coming onto the market; asking rents are up roughly 5 percent over the past year. Elsewhere in the region, office markets are mostly steady to stronger: vacancy rates fell in Long Island, northern New Jersey, Rochester and Albany and were little changed in the Long Island and Buffalo markets. One exception is the Westchester/Fairfield county market, where vacancy rates have risen to a ten-year high, and office rents have been declining. The market for industrial space has been steady to stronger: vacancy rates have declined modestly in the Long Island and Westchester/Fairfield markets and held relatively steady in northern New Jersey and across upstate New York.
Other Business Activity
Manufacturing contacts again report steady business activity in recent weeks, while their optimism about the near-term outlook has waned somewhat. In contrast, contacts in other sectors generally report some pickup in business activity and employment; they also express increased optimism about the business outlook, and a growing number of them plan to add workers and increase capital spending. Price pressures are mostly reported to be steady and moderate in the manufacturing sector but more widespread among service-sector businesses; still, relatively few service-sector contacts say they are increasing their selling prices.
The labor market continues to improve gradually but steadily. A growing proportion of business contacts say they are adding workers, except in the manufacturing sector, where employment is reported to be little changed. Two major employment agencies report that hiring activity has been fairly robust, particularly for information technology workers. There is also reported to be fairly strong demand in fields such as auditing and compliance. Large financial firms, typically a major source of jobs in New York City, are reported to be hiring only sporadically. While the temp business remains strong, a growing number of firms are hiring full-time workers. Although qualified job candidates are said to be increasingly hard to find, most employers are still said to be holding the line on compensation, though some are becoming more negotiable.
Financial Developments
Small- to medium-sized banks report an increase in demand for all types of loans except for commercial & industrial loans, where demand was unchanged. Bankers report little change in demand for refinancing, on balance. Contacts report that credit standards are unchanged across all loan categories. Bankers continue to indicate narrowing in spreads of loan rates over costs of funds for all loan categories--most notably in commercial mortgages. Interest rates on deposits continue to decline, on balance. Finally, bankers report fairly widespread decreases in delinquency rates for all loan categories.