January 20, 1984
Introduction
The improvement in the Second District's economy is continuing at a
moderate pace. The Christmas season was a strong one for area
retailers, with sale. gains over the lackluster year-earlier period
in the 10 to 20 percent range. Manufacturing activity continues to
expand, led by strength in the automotive sector. Purchasing
managers note a pickup in orders and an increased willingness to
accumulate inventories. The nonresidential real estate market
remains strong with a quickening pace of leasing activity and the
announcement of new building projects. Residential construction is
at a seasonal low but the outlook for the spring is favorable. On
the financial side, banks report a modest increase in business
borrowing and strong demand for consumer credit.
Consumer Spending
Second District retailers reported brisk sales during the Christmas
season, with over-the-year increases in December generally in the 10
to 20 percent range. Business exceeded expectations at most stores
and only one upstate New York chain recorded a December-to-December
gain of less than 10 percent. Spending was generally heavy from the
Thanksgiving weekend to Christmas, and a wide range of products was
reported in demand. This contrasted with 1982 when sales were weak
until late in the season and stores engaged in heavy promotional
activity prior to Christmas. Sales continued strong in the final
week of 1983 but in early January reports were more mixed, with
growth over 1983 ranging from flat to 20 percent. Some stores report
low levels of inventories and a desire to rep1enish stocks. Others
plan to increase inventories only in line with sales. Most retailers
expect demand to remain strong compared to the levels of a year ago,
but with much smaller over-the-year gains than in December.
Business Activity
Business activity in the Second District continued expanding at a
moderate pace in recent weeks. While the automotive industry remains
the major source of strength throughout much of the District, other
manufacturing industries reporting improvement were electrical and
nonelectrical machinery, fabricated metals, chemicals, and food
products. New orders are continuing to improve, and purchasing
managers in some upstate areas noted an increased willingness to
accumulate inventories.
Several companies have recently announced plans to open new facilities in the District. These include a large printing plant in Saratoga Springs, a computer operations center on Long Island, end a factory for producing computer components in the Poughkeepsie area. In addition, a number of companies will soon begin expansion and renovation of their existing operations. The largest of these projects is a $67 million, 2-year modernization and expansion of a paper mill in upstate New York. In most cases these new installations and expansions are expected to generate increased employment.
Unemployment has declined in the Second District in line with the national trend. The December unemployment rate in New York State was 7.4 percent, an over-the-year improvement of l.7 percentage points, while New Jersey's 6.8 percent rate was 2.4 percentage points below its December 1982 level.
Construction and Real Estate
Residential construction activity is at a seasonal low now that cold
weather has moved into the District. Traffic. and sales have also
slowed and are not expected to pick up before the end of January.
Over the next few months though, the outlook remains bright.
Homebuilders are fully booked through the spring. Nonetheless, many
question the sustainability of last year's construction pace. They
believe that most of the pent-up demand has already been satisfied
and that lower mortgage rates and stable housing prices will be
needed to generate much additional interest from potential
homebuyers. Builders seem skeptical that prices will stabilize in
the near-term because of ongoing labor and materials shortages. And
the likelihood of continuing large Federal deficits makes them doubt
that mortgage rates will decline much.
The nonresidential real estate market continues to exhibit signs of strength. Leasing of office space has progressed at a brisk pace and generally without significant rent reductions or other landlord concessions. Although nonresidential starts have been scarce, several new plans for future projects have recently been announced. Some of these represent expansions into what are generally considered secondary locations such as the West Side and the area north of the World Trade Center in Manhattan, and north of the Route 287 corridor in Westchester County.
Financial Developments
Banks in the Second District have reported a modest increase in
business borrowing during the last month. Inventories, receivables,
machine tool purchases, construction, and capital expansion were
cited as uses for the increased loans, although no one purpose was
singled out as being particularly significant. One respondent noted
an expansion of loan demand at middle-size corporations but no
increase for the largest corporations.
Consumer borrowing remained strong in recent weeks. In particular, auto loan demand was cited as being robust. Some banks reported that strong consumer credit demand has continued into early January instead of the usual after-Christmas slowing.