September 16, 1984
Introduction
Second District retailers experienced a relatively weak summer, but
all other segments of the regional economy report continuing strong
and stable growth. Department store sales generally failed to match
expectations in July and early August, for the first time in several
months. Nevertheless, New York banks are sharing in the nationwide
surge of revolving credit loans. Homebuilders reported a strong
market dominated by high-income buyers and significant numbers of
cash customers, and the suburban construction industry is generally
working at capacity. Office space remains scarce in midtown
Manhattan, but increasing vacancy rates are a concern elsewhere in
the District. The employment outlook in New York and New Jersey is
still improving as a result of the announcement of plans for more
major expansion projects.
Consumer Spending
Retail sales in the Second District were very soft during July and
early August. Volume generally fell short of retailers' expectations
for the first time in several months. Local merchants reported July
sales gains averaging only 5 percent over the same period a year
ago, and only one major retailer registered a very large increase in
business. In early August, the weakness persisted. Shoppers were
widely believed to be staying home to watch the Olympic games. Most
of our contacts reported improvements of varying magnitudes
afterwards, and sales figures for the entire month ranged from a
decline of 1 percent to an increase of 17 percent. Inventories have
been brought more in line with desired levels over the past two
months, with levels now averaging 20 percent aver last year as
compared to nearly 30 percent in May and June. However, in light of
recent soft sales, retailers are still assessing their forecasts and
their future inventory needs.
Financial Developments
Even with the slowdown in retail sales growth, New York State banks
report that both the number of active revolving credit accounts and
the proportion of available credit lines drawn down have been
expanding rapidly. At the same time, high interest rates have
encouraged households to pay off balances at least as fast as or
slightly faster than in the past, and the proportions of delinquent
accounts are at record low levels. Bankers attribute the rapid
growth of revolving credit to the proliferation of new revolving
credit instruments and the general strength of income and employment
in this region's economy.
Business Activity
Economic conditions showed further moderate growth in the District
during recent weeks. Upstate purchasing agents reported a modest
expansion of new orders in August and inventories were generally at
satisfactory levels. The automotive industry remained strong: a
major producer began accepting job applications for the first time
in four years, and a tire manufacturer broke ground for a $100
million plant expansion. Additionally, a $1.3 billion defense
contract was awarded on Long Island, and an electronics firm is
moving some operations from the south to its facility in the
Schenectady area. Five television series are planned to begin
production in New York City this fall and winter.
The unemployment rate, seasonally adjusted, declined in both New York State and New Jersey during August, in contrast to the unchanged rate for the nation as a whole. New York's 7.7 percent was slightly above the U.S. average of 7.5 percent, while New Jersey's rate of 6.l percent remained below the nation's.
Construction and Real Estate
Residential building activity remains brisk in the region, and order
books are largely filled for the year. Activity is limited by
continuing shortages of skilled labor in New York City suburban
areas. Ongoing construction has benefited from employment growth in
high-salaried technology industries. Cash purchases and private
financing have helped sustain the District's solid, upper-tier
housing market, even with increasing mortgage interest rates.
Nonresidential construction continued at its strong pace throughout most of the Second District. The major exception is midtown Manhattan, where lack of sites and high construction costs are restricting the supply of new space. Observers are looking to new development projects in places such as Times Square, south midtown, and the Hudson River area to provide relief. New York's downtown vacancy rate continues to grow as new buildings are coming on line at the same time as the financial services' industry has been weakening, and demand for in-town back-office has been depressed by high prices. On Long Island, leasing activity remains brisk, but observers are not certain that demand can keep pace with the amount of speculative construction activity.