Beige Book Report: New York
November 16, 1982
Reports from business leaders throughout the Second District suggested that the region's economy has stopped declining though concrete signs of an upturn remained limited. Retail sales exhibited some sluggishness at the beginning of October but improved modestly in recent weeks. Although residential building was still at depressed levels, builders have turned more optimistic. Nonresidential construction activity continued strong. In manufacturing, further layoffs occurred but at a greatly reduced rate. Even with some emerging signs of stabilization in the District's economy, few of our business leaders foresaw an immediate upturn. Concern over the future course of interest rates was voiced by a wide range of our contacts.
Consumer Spending
Retail activity was sluggish at some stores at the beginning of
October but improved modestly in more recent weeks. For the month as
a whole sales generally ran above the year-earlier pace.
Nevertheless sales volume did not meet expectations of some
merchants. However, national retailers again reported that sales
tended to be better in the Eastern region than elsewhere around the
nation. Basic apparel and fashion goods were mentioned as strong
items and one store noted a pickup in home furnishings. Inventories
were generally in line for the holiday season, but a few merchants
reported some excess, but not worrisome, accumulation. Most
retailers expected sales to hold up for the remainder of the year,
but only with continued heavy promotional activity and aggressive
pricing.
Construction and Real Estate Activity
For the first time in several months, the residential construction
market showed some signs of life. While actual starts and sales of
new homes remained slow in many areas of the District, builders were
generally more optimistic than they had been earlier. Real estate
people noted a decided pickup in buyer inquiries which they
attributed in part to the decline in mortgage rates. The continued
high level of interest rates on construction loans, however,
dampened builder enthusiasm for initiating new projects. Home prices
in the region remained steady with sellers still offering
concessions such as buy-downs.
Nonresidential construction activity continued strong as a result of projects currently underway, but announcements of major new projects were still scarce. Nevertheless, respondents felt that an upturn was closer at hand. Even though the office market in the suburbs remained soft, Manhattan experienced a small but definite increase in leasing activity, the first such increase in over six months. Moreover, office rents have stopped slipping and the amount of vacant space did not increase.
Business Activity
Reports from business leaders throughout the District reinforced the
view that the region's economy may have hit bottom. Although layoffs
continued, they occurred at a much reduced rate. Business activity
for many defense contractors, high technology manufacturers, and
finance and other service companies held strong. Unemployment rates
in the region remained below the national rate, rising less rapidly
here than nationwide since the beginning of the year. Initial claims
for unemployment insurance have basically held steady, in contrast
to the recent sharp upturn at the national level. Many of our
respondents had previously expressed fears that the current
recession would eventually trigger a repeat of the greater-than-
national decline of the District's economy as occurred in the early
seventies. They now, however, feel more confident of the ability of
the region to ride out the recession without a major collapse. Some
areas of the region, including New York City, have even weathered
the recession thus far without experiencing any year-over-year drop
in employment.
Outlook
While the local economy appears to have stopped declining, few of
our respondents saw signs of an immediate upturn. Indeed some
respondents feared that the national economy had not permanently
bottomed out but had merely paused before resuming its downward
slide. Uncertainty over the outlook grew from concerns that 1) the
large deficits projected for all levels of government would bring
back high interest rates; 2) the recession would continue at the
national level and begin to permeate the nonmanufacturing sector;
and 3) increases in the number of workers exhausting their
unemployment benefits would dampen consumer spending. Skepticism as
to the likelihood of any quick rebound was reinforced by a New York
State Department of Labor official who found no strengthening in the
average number of hours worked per week, normally a precursor of any
improvement in the economy. Nevertheless, manufacturing inventories
remained lean and companies appeared ready to step up production in
response to any strengthening in orders.
Financial Panel
This month we have comments from Irving Auerbach (Aubrey Lanston)
and John Olcay (New York representative of London's W. Creenwell):
Their views of course are personal, not institutional.
Auerbach: Saw no prospects for a significant recovery unless interest rates fall much further. Even if that should happen soon, the impetus to greater output would not take effect before the second quarter of next year. So it is unlikely that 1983 will turn out to be strong.
Olcay: Echoed similar thoughts. An immediate cut in short-term interest rates of about 2 percentage points is both warranted and necessary for any recovery to begin. The risks in terms of inflationary expectations are minimal, because the European economies are very weak and will not snap back until a U.S. recovery is well underway (by which time the Federal Reserve can again safely target Ml). So commodity markets will not tighten. Olcay put particular emphasis on the dollar's strength, which has severely eroded U.S. export competitiveness. It means that the domestic economy will have to grow by 1-2 percent just to keep overall GNP level.