Beige Book Report: New York
September 16, 1985
Most sectors of the Second District economy are currently showing little growth in activity and our contacts' views of the outlook are varied. With retail sales slow except in cases of heavy promotional activity, merchants voice little optimism about the autumn. Business activity is seasonally slack in a number of areas, but some firms continue to make investments and others anticipate a pickup in orders. Office availability rates are generally high, though demand for office space in some areas is relatively strong. By contrast, the housing market remains quite active, and small District banks report no problems with consumer or mortgage loan delinquencies.
Consumer Spending
As yet there is no sign that District retail spending will overcome
its recent sluggishness. One major chain reports July sales were 3.5
percent below last year's level while another had only a
disappointing 2.5 percent gain. Some stores did register increases
in excess of 10 percent but only with extremely heavy promotional
activity and low profitability. A spokesman for one of these stores
believes consumers have become accustomed to promotional markdowns
and now avoid buying at full price. This is more of a problem for
department stores than for discounters.
Opinions about the current state of inventories are varied. One of our contacts is satisfied with a 13 percent increase since his stocks are "clean" of leftover spring-summer goods. However, another chain finds a 10 percent increase unsatisfactory because sales levels are down. A third chain had to trim inventories by 6 percent in order to meet its plan. District retailers are not very optimistic about the outlook given the less-than-robust state of the national economy. They are concerned that consumers will remain cautious and sales gains will only come through further heavy promotions.
Business Activity
Second District economic activity showed no clear direction in
recent weeks. On one hand, Buffalo purchasing managers report a
slight improvement in new orders during July coupled with stable or
lower inventory levels. On the other hand, a higher percentage of
Rochester area firms report slower business conditions and a buildup
in inventories due to seasonal factors. Despite current conditions,
Rochester purchasing managers anticipate a pickup in business
activity during the next few months.
In contrast, the unemployment situation has improved markedly. The July unemployment rate of 6.1 percent in New York State was 2 percentage points lower than a year earlier. New York City had an even larger drop from 11.5 to 6.9 percent. New Jersey's unemployment rate, currently 6.0 percent, has been below the national level for more than a year.
Major investments continue to establish a base for future economic expansion. Ground was broken recently in the first phase of a $30 million Dunkirk Harbor Development project in western New York and construction was started on two new hotels in that same vicinity. Plans have also been announced for a 650,000 square foot shopping mall and a $28 million high-tech research and development plant in Rochester. In addition, through government assistance end tax-exempt financing, two abandoned manufacturing facilities will soon reopen: (1) an employee-owned castings firm will modernize a Binghamton area foundry which closed in 1982, and (2) a rail car assembly plant will open at the former Otis Elevator site in Yonkers.
Construction and Real Estate
Residential construction activity remains strong in the District in
response to continued heavy demand. In some areas lower mortgage
rates are cited as a major factor. Shortages of skilled labor and
certain materials still delay scheduled completions, and speculative
home building is generally at a minimum. Builders expect to maintain
this busy pace at least through year-end. Home prices continue to
move higher in much of the District. But in Manhattan luxury co-op
and condo prices have begun to ease. An autumn 1985 cutoff date for
certain city tax abatements prompted an unusually heavy volume of
new multifamily building this year in Manhattan.
The District's nonresidential real estate market remains seasonally inactive. Availability rates are at relatively high levels in a number of areas, and concessions by sellers and landlords continue to prevail in much of the District. Moreover, in northern New Jersey and Fairfield County demand for office space is limited to small users. Some areas of relative strength do exist, however. In Rochester, for example, contacts report that office construction is reported robust with no current vacancy problems. In downtown and mid-Manhattan the leasing of new office space is proceeding at a satisfactory pace.
Financial Developments
While consumer credit and mortgage loan delinquencies rose sharply
nationally in late 1984 and early 1985, at small District banks
consumer credit delinquencies have not increased and mortgage
delinquencies have risen only slightly. In many cases, consumer
delinquencies have actually shown an over-the-year decline. In
general, delinquencies are not expected to become a problem, and
small District banks do not plan to toughen or change their lending
policies. Some banks attributed stable delinquency rates to the
development and maintenance of close client relationships. They also
cited lower interest rates and conservative eligibility guidelines.