Beige Book Report: New York
June 24, 1986
Summary
The pace of the expansion in the Second District economy has varied
among sectors since the last report. Most retailers experienced
further growth in sales, and builders report increased buyer
interest in new homes. The commercial real estate market showed
little change, however, and business activity was somewhat weaker.
Many small banks have experienced a moderate rise in the number of
credit card accounts in recent months.
Consumer Spending
Most retailers in the Second District reported continued growth in
sales, with May somewhat stronger than April. Medium and higher
priced stores generally registered over-the-year sales increases of
10-15 percent, while discount stores reported smaller gains or
losses in some cases. Consumer demand for household durables,
especially furniture, showed a noticeable pickup after several
months of weakness. One retailer reported that with the drop in
interest rates, "Consumers seem to be starting to move on big-ticket
purchases." Fashion apparel, particularly better sportswear, also
sold well. In addition, more foreign tourists are shopping in area
stores after a steady decline over the last few years. However,
according to retailers, these recent gains do not yet mark a trend
toward steady and strong growth.
In New York City, where sales had been slower, recent gains generally matched the pace in the rest of the District. Sales growth in western New York, however, continued to be erratic. One department store chain in that area experienced a 4 percent over- the-year decline in April, but then registered a strong gain of 9 percent in May. Recent sales growth was reportedly higher in Buffalo than in Rochester, where many residents are concerned about large- scale layoffs scheduled for this year at Kodak.
Business Activity Economic activity in the Second District weakened slightly in recent weeks. Almost 25 percent of purchasing managers surveyed in Buffalo and Rochester reported a worsening of business conditions in April, up from 18 and 8 percent in March, respectively.
May unemployment rates rose in both New York and New Jersey to levels somewhat above a year earlier. While New Jersey's 5.5 percent rate remains well below the United States average. New York's 7.4 percent is now slightly higher. Employment in the non-manufacturing sector continues to expand, but reports from several firms indicate that further layoffs may occur in manufacturing. In Rochester, for example a 10 percent cutback is underway at Kodak, and a General Motors division there may soon reduce its workforce by several hundred. Downstate on Long Island there is concern that a recently cancelled Air Force contract could mean the loss of several thousand jobs at Fairchild Republic when existing contracts are completed.
On a more positive note, Smith-Corona will increase its workforce by 300-400 in upstate New York and two other firms plan large scale expansions of their research and laboratory facilities. These expansions will result in additional employment in the pharmaceutical and optical equipment industries.
Construction and Real Estate
Homebuilders in the Second District are very busy; in fact, the
biggest problem for many is keeping up with demand. Lower mortgage
rates are cited as a primary factor behind the strong buyer interest
at this time. A record year for housing starts is forecast in some
New Jersey areas, and in western New York the biggest housing boom
in 10 years is reportedly underway. However, upward pressure on
prices is resulting in some areas from a growing shortage of
suitable lots, and certain types of skilled labor retain in short
supply.
The Second District commercial real estate market has stabilized in recent weeks. While rent concessions remain widespread and inventory levels continue high in some areas, no additional softening seems to have occurred. Vacancy rates have also shown little change recently. Observers anticipate some improvement, however, because the number of plans for new office space is declining in areas of excess supply such as northern New Jersey and Fairfield County.
Financial Developments
Many small banks in the Second District report that the number of
their credit card accounts has grown somewhat in the past few months
despite high rates and a large amount of consumer indebtedness. A
few banks noted, however, that they had also raised their minimum
payment requirements, and the volume of their outstanding credit
card debt has not increased much as a result. The growth in the
number of accounts is partly attributed to increased advertising and
the development of cards targeted at specific occupations, and
income levels. Growth at some banks has also resulted partly from
the acquisition of competitors' facilities. A few banks, in
contrast, report that their share of the credit card market has been
eroded by money center banks, and they have responded by lowering
rates and fees and by lengthening grace periods.