Fed to Manhattan: Shine On, You Crazy Diamond!

Brokers, developers, and the media have been trumpeting the resilience of Manhattan’s condo and co-op market for nearly a year, and now even the Federal Reserve has singled it out in the latest installment of its regional survey known as the “Beige Book.”

The Fed interviewed businesses in 12 districts to gauge the pulse of the economy, and results from across the country show that it is sputtering. The report says growth has slowed down in two-thirds of the districts surveyed and is subdued in the rest of the country. From retail and banking to manufacturing and credit, almost every sector of the economy is either stagnant or performing poorly.

The pace of business activity is “softening or weakening.” Retailers are generally “downbeat.” Consumer spending is down, and the report notes “increased pessimism” among buyers. Manufacturing is “sluggish.” Apparel sales are particularly “soft” in Manhattan. Across the country car sales have “slowed.” The credit market “is tight.”

The bright spots in the 49-page Beige Book are few and far between, but New York’s apartment market is one of them—at least from the perspective of the real estate industry.

“Districts that reported home prices all saw overall declines; one exception was the Manhattan condo and co-op market, where prices increased 5 percent compared with a year ago,” says the report.

As of early 2008, “transaction activity was roughly on par with a year ago," and there was “a normal seasonal increase in the inventory of units on the market in January.”

Though the Fed says “Manhattan’s office market remains tight," vacancy rates have edged up and rents have decelerated lately.

Tourism activity in Manhattan shows “some signs of slowing," but remains strong. (Thanks to the euro and the pound, no doubt.) Hotel occupancy rates in January and February were more or less on par with a year ago. While prices and revenues have stabilized, they are still 10 to 12 percent higher year-over-year. Broadway theater attendance has grown 3 to 4 percent.

Investment bankers can also exhale for now, because despite widely announced layoff plans at the financial firms, they are still hiring “sporadically.” Private equity firms and hedge funds on the other hand are “hiring at a good pace.”