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Beige Book Report: New York

August 10, 1983

In recent weeks the economic recovery grew stronger in much of the Second District. Retail activity was very brisk in June, and though the July pace was a little slower, sales remained well above year-ago levels at most stores. Additional signs of strength were evident in the housing and nonresidential real estate markets. Business activity continued to pick up in the manufacturing sector where producers of many different goods reported rising orders. However, manufacturers remain generally cautious about production increases and new hirings, and demand for new business loans is still slack. Agricultural conditions are mixed. Fruit and field crops look good, but the dry weather in July has hurt the vegetable crop.

Consumer Spending
Retailers described their June sales as "outstanding" and "extraordinary." Most of our respondents, representing a broad range of income markets, also posted double-digit gains over year-ago levels in July. One suburban discount chain reported that July sales were "gangbusters," up 25 to 30 percent. Others felt the July pace was not quite as good as the prior month but attributed the slight falloff to special factors such as hot weather or store remodeling. They saw nothing to indicate a slowdown in the recovery. The only report of sluggish demand came from an upstate New York chain of department stores; lingering weakness in some local economies held gains there to only two percent above last year. Respondents indicated they were increasing their inventories in anticipation of greater activity. Two were letting their stocks rise faster than sales. The competitive environment, which had been quite fierce earlier this year, appeared to be easing, but the level of promotional activity generally remained high.

Construction and Real Estate
Residential construction activity remained at a high level during recent weeks. Many homebuilders have enough contracts to carry them through the rest of the year. In fact, the industry has been so busy in some areas that a significant shortage of skilled labor has materialized. While the current levels of sales and construction activity are quite high, builders are wary about the recent upturn in interest rates; they fear higher mortgage rates could cut the demand for homes next year. However, future construction activity is likely to be stimulated by recent New York State legislation which will provide millions of dollars in low interest loans for the private construction of multifamily, rental housing.

The nonresidential real estate sector appeared to be strengthening further, especially in suburban areas. The rate at which available space is being leased has picked up significantly, and ground was broken for a number of office buildings in New Jersey and Connecticut. Work on ongoing projects continued strong. Although announcements of new construction projects in New York City are expected to remain scarce for awhile, several promising properties were purchased by developers in the downtown Manhattan area—indicating a definite firming in market conditions.

Manufacturing
Business activity continued to pick up in the manufacturing sector. Manufacturers of diverse producer and consumer goods, such as chemicals, electrical equipment, home weather stripping, and toys, reported that orders were rising. Auto parts suppliers noted that their upswing has been maintained, and several defense companies were awarded sizable contracts. Businessmen generally are now convinced that the economy will continue to expand but they remain cautious, nonetheless. Production increases still are being scheduled primarily to meet incoming orders rather than to rebuild inventories. Moreover, while recalls have significantly reduced the number of employees on layoff, few firms are expected to add new workers soon. One respondent thought it would take several more months of improvement before firms would make long-range commitments to capital projects or substantial new hiring.

Agriculture
Conditions in the agricultural sector vary by product. The New York fruit crop looks favorable, and growers are anticipating attractive prices as well. Field crops have recovered from earlier bad weather, although first cuttings are occurring a few weeks later than usual. In contrast, vegetable yields have been threatened by an unusually dry July. Dairy farmers are concerned about rising production costs; grain prices have begun moving upward in response to PIK-related crop reductions, and a general buildup in herd size is expected to exert further pressure on feed costs.

Financial Developments
The strong economic recovery nationwide has not been reflected in the demand for business loans at Second District regional banks. In July, these banks reported only a slight increase in business loans outstanding, mostly stemming from take-downs under existing lines of credit, and almost no increase in new applications for business loans. In contrast, in the consumer sector, strong increases in the demand for credit—for auto purchases, personal loans, and charge card purchases—seem to reflect rising consumer confidence and ample loanable funds at banks. The demand for mortgage credit appears to have backed off a bit because of recent increases in long-term rates.