NORTHEAST: The Little Engine that…

ECONOMIC OVERVIEW

Like the little engine that could, the Northeast is seeing budding confidence despite a slow recovery. While the Northeast boasts a populace larger than most other U.S. Census regions—and a highly affluent consumer base—it maintains an unemployment rate higher than the U.S. average. Still, a slow, steady decline in unemployment is growing consumer confidence.

JOBLESS RATE

The Northeast’s unemployment rate has come a long way since its 10-year high of 8.9 percent in February 2010. In April 2013, the jobless rate dropped to 7.6 percent, down from 8.1 percent in April 2012, according to the U.S. Department of Labor’s Bureau of Labor Statistics (BLS). Still, the Northeast lags behind the unemployment rate recovery in both the Midwest (7.2 percent) and the South (7.1 percent) in April 2013. Its unemployment rate is also higher than the 7.5 percent overall U.S. rate in the same period.

“The Northeast region of the U.S. has seen high unemployment rates,” says Jack Kleinhenz, PhD, chief economist at the National Retail Federation (NRF). “In addition, wage and salary growth has trailed the U.S. average during 2012 and currently is showing a 1.6 percent growth in the first quarter versus the same period a year ago.”

The Northeast experienced 1.8 percent growth from April 2012 to April 2013 in total compensation for private industry workers as well as a 1.6 percent growth in private industry wages and salaries for the same period.

NORTHEAST STATES

The Northeast’s New England states fared far better than others in the region. Vermont has an unemployment rate of four percent reported in April 2013, according to the BLS. New Hampshire is not far behind with a rate of 5.5 percent. In addition, Massachusetts reported a relatively healthy 6.4 percent unemployment rate for the same period.

Other states in the region, such as Rhode Island (8.8 percent), New Jersey (8.7 percent), New York (7.8 percent), as well as Pennsylvania (7.6 percent) exhibited a more lackluster performance.

BUILDING CONFIDENCE

Even in the face of an uninspiring jobless rate, the Northeast maintained some semblance of optimism about the economy. The Consumer Confidence Index (CCI) in the Northeast’s New England Region, as reported by The Conference Board, rose to 72.9 in May, compared to 60.2 in May 2012. New England’s CCI is healthy, compared to that of the overall U.S., which reported in at 76.2 (1985=100) in May, up from 69 in April.

COST OF GOODS

While consumers in the Northeast got crunched by a higher-than-average jobless rate, they saw a slight reprieve on inflation as the Consumer Price Index (CPI/the prices paid by urban consumers for a representative basket of goods and services) for All Urban Consumers only increased by 1.1 percent in April 2013 over April 2012, according to the BLS. The overall U.S. CPI actually decreased by 0.4 percent in the same time frame.

RETAIL REAL ESTATE

The Northeast’s retail real estate vacancy rates are steadily dropping, while its asking rents are slowly but surely increasing. That’s good news for a region still plagued by undesirable overall unemployment rates.

VACANCY RATES

The Northeast reported an 8.8 percent vacancy rate for the first quarter of 2012 compared with the 10.6 percent rate for the entire U.S., according to Reis, Inc., a New York City-based firm that provides forecasts of vacancy, rent, and inventory rates in the retail real estate market.

This number is only slightly down from the nine percent vacancy rate of first quarter 2012. Recovery here, and across the U.S., is slow but steady, says Ryan Severino, a senior economist with Reis, Inc. “Vacancy rates are coming down and rents are starting to grow, but at a moderate pace,” he notes.

RENTS

Asking rents are also gaining steam in the Northeast—ringing in at $20.54 per square foot, according to Reis, Inc., up ever so slightly from the first quarter of 2012 when asking rents were $20.41. “We’ve barely seen an improvement over last few years,” says Severino. “It’s going to take a few more years—maybe in 2016 or 2017 it starts to look a lot better.”

CITIES TO WATCH

Boston continues its recovery, with an unemployment rate of 5.7 percent in April 2013, down from 6.3 percent in April 2011. This New England city also boasted a commercial real estate vacancy rate of 4.3 percent in the first quarter of 2013, according to The CoStar Retail Report from the CoStar Group, which provides information on the commercial real estate market. Rental rates were up over the previous quarter to $15.91 per square foot.

Maine’s Portland/South Portland metro area has a jobless rate of 5.7 percent (compared with 6.3 percent in April 2011), according to the BLS. The vacancy rate dipped to 5.5 percent and its rental rates grew.

In New York City, the unemployment rate dipped to 7.7 percent in April, down from 8.6 percent in April 2012. It also boasted 2.2 percent vacancy rate and retail real estate rental rates rang in at $50.90 per square foot in first quarter 2013, an increase over the previous quarter, according to CoStar.

While the jobless rate continues to decline in Philadelphia (down to 7.5 percent in April 2013 from 7.6 percent in April 2012), its vacancy rate remained unchanged in the first quarter of 2013 from the previous quarter, and commercial rental rates held at $13.85 per square foot.

FASHION TRENDS

The Northeast is quick to adopt the latest styles. “The Northeast leans toward more somber and neutral but sophisticated and modern interpretations,” says Roseanne Morrison, fashion director at The Doneger Group, a New York-based trend/color forecasting service.