August 6, 1984
Summary
Although the Second District's economy continued to expand through
June and early July, a few indications of some future slowing
appeared. Consumer spending, production and commercial and
residential construction were all strong. But higher interest rates
on real estate loans have begun to discourage some marginal
homebuyers, and rising vacancy rates have caused some concern among
commercial developers bringing new office space on line. In the
agricultural sector, weather conditions have made the outlook
discouraging.
Consumer Spending
Retail sales in the Second District continued to exceed expectations
of local merchants during the month of June, though posted increases
of between 10 and 20 percent over year-earlier levels were generally
lower than those recorded for the previous two months. For July,
estimates of sales increases varied widely among informants. One
retailer in New Jersey reported only a five percent increase in
sales over last year, while another chain with mostly suburban
outlets reported a gain of twenty-eight percent. By mid-July
retailers' inventories had generally fallen to planned levels,
stores having reduced the somewhat excessive stocks of May and June.
Business Activity
The expansion in the District's business activity quickened somewhat
in recent weeks. A higher percentage of purchasing managers reported
an improvement in new orders, particularly in the Rochester area,
and the percentage reporting lower orders declined. Inventories
generally remained unchanged from the satisfactory levels of a month
earlier.
Employment gains were registered in most of the District's labor market areas in June, and the number of nonfarm jobs in New York State climbed above 7.5 million for the first time. The improvement occurred across all industry categories but was most heavily concentrated among wholesale and retail trade establishments. Additional employment data suggest that the reported June increase in New York State unemployment from 6.7 to 7.1 percent was probably a statistical aberration as was New York City's increase from 7 to 10 percent.
Financial Sector
Although New York money center banks typically have offered higher
rates on unregulated consumer deposits than the national average, a
rate war has broken out recently among these large New York City
banks. By July 25 the average yield on six-month deposits was up 132
basis points from five weeks earlier, compared with 54 basis points
nationally. Even with this run-up in yields at money center banks,
there has not been any significant loss of consumer deposits at
small institutions is the District.
Construction and Real Estate
The strength of the housing market is beginning to diminish in most
parts of the District. Higher mortgage rates have been depressing
traffic especially among first-time buyers and for lower- and
middle-priced houses. Homebuilders have experienced little adverse
impact at present, but the outlook for construction for spring
deliveries is increasingly uncertain. Concerns about interest rates
and growing inventories of vacant space are also beginning to affect
commercial real estate markets. In lower Manhattan both supply and
vacancy rates are increasing rapidly due to the completion of seven
million square feet of office space. On Long Island too, a sizable
amount of space is available or under construction.
Agriculture
The agricultural picture has been adversely affected by weather
conditions. Excessive rainfall and unusually cool weather delayed
spring plating in mach of the District, and lower vegetable and
other crop production is likely this year. Dairy farmers report that
milk prices have been relatively flat, while costs continue to rise.
Some increased demand for processed dairy products has occurred,
however.