Beige Book Report: New York
October 23, 1984
Introduction
Economic activity in the Second District grew moderately in recent
weeks, but at a slightly slower pace than in late consumer. Consumer
spending continued to show improvement in September and early
October, and generally met the expectations of retailers. Most
purchasing managers report growth or stability of new orders but a
growing minority reported actual decreases. Business loan demand was
mixed across banks, and in the aggregate was essentially flat. The
office market softened in some areas while remaining strong in New
York City. Homebuilders will be busy through the remainder of 1984,
and in parts of the District are optimistic about next year.
Consumer Spending
The pace of consumer spending in the Second District shows continued
improvement. According to area retailers, the strengthening in
department store sales which began in late August has continued
through the first week in October. September sales gains varied
widely among respondents, averaging about 8 percent over levels of a
year ago, and generally matching expectations. The region on average
outperformed the nation's sales growth, but business in New York
City was not as good as in the rest of the District. Inventories
remained mostly on target, averaging 15 percent over last year,
partly with the help of promotional markdowns. However, one higher-income department store chain reported inventories 22 percent over
1984 as a result of sluggish business since June.
Business Activity
Economic activity continued to expand in recent weeks, but the pace
is slowing. Reports by upstate purchasing managers indicated
significantly slower growth of new orders and faster delivery times
in September. While the majority of firms faced conditions that were
unchanged from the prior month or still improving, the proportion
reporting actual decreases of orders grew to nearly one-third in
Buffalo. Major plant construction or expansion projects were
announced by several firms across the state, such as manufacturers
of electronics, chemicals, plastics, and furniture. The Army will
station a new division in economically depressed Jefferson County,
generating up to 20,000 construction jobs. The unemployment rate in
New York state, seasonally adjusted, fell from 7.7 percent in August
to 7.0 percent in September, while the New Jersey rate held steady
at 6.2 percent.
The cost of electricity on Long Island is of growing concern. The state Commerce Department reports that 400 firms have threatened to close or relocate in response to recent and expected future rate hikes associated with the Shoreham nuclear plant.
Financial Developments
Business loan demand at regional banks in the Second District has
been mixed in recent weeks, Overall volume was essentially flat, as
has been the case nationwide. Borrowing by car dealers is reported
to be down, reflecting lower-than-usual inventories at the end of
the model year. In contrast service industry demand, particularly by
advertising agencies, has been strong. Upstate bankers indicate that
loan demand from the manufacturing sector was especially weak in
Western New York, but was fairly strong in the Syracuse area.
Borrowing by retailers also was geographically mixed.
Construction and Real Estate
Residential construction is operating at capacity in the District,
and activity through the end of the year may be restrained only by
unfavorable weather or shortages of skilled labor and
subcontractors. Demand appears to be driven primarily by rising
incomes, and current interest rates seem to have little downward
effect. Planning for 1955 is unusually active for October in New
York City's northern suburbs. Homebuilders generally expect a repeat
of this year's strong performance.
The office leasing market softened considerably in parts of the Second District. High levels of speculative construction are still taking place despite sluggish demand in areas such as Fairfield County and northern New Jersey. On Long Island, in spite of electricity rate fears, demand is fairly strong but some observers question whether it will be sufficient to absorb the large amounts of space coming on line. The market in Midtown Manhattan continues to be very active, and the likelihood is increasing that prime space will be scarce and rents will rise by year-end. Downtown, concern about potential oversupply seems to have abated. Demand seems stable, and very large blocks of space are scarce. Still, observers predict longer phase-in periods for recently announced construction projects.