August 5, 1986
Overview
In recent weeks, the economic expansion in the Second District
varied across sectors. Retailers reported consumer spending at or
above planned levels during June and early July, and demand for new
housing remained strong. Leasing activity in the commercial real
estate market was not uniform, however, and business conditions were
also mixed. Delinquency rates on consumer loans at small District
banks mirrored the national trend, leveling off in the first quarter
following the earlier increase.
Consumer Spending
In general, consumer spending in the Second District during June and
early July was at or above planned levels. Most New York City
retailers reported growth between 10 and 14 percent over last year
as the large influx of tourists for the July 4th Liberty Weekend
contributed to gains in New York City that were above the District
average.
Higher-priced stores in the region continued to report the greatest year-to-year increases with gains ranging from 8 to 15 percent. Discount stores registered growth between 6 and 10 percent, while medium-priced retailers generally recorded gains of 4 to 7 percent. However, one store in Western New York experienced only a 1 percent increase in sales, substantially below its expectations. Plant closings and recent layoffs reportedly have reduced consumer demand in that area.
Consumer durables, especially furniture, accounted for much of the growth in spending. Sportswear and athletic footwear were also in strong demand. With sales in line with expectations, most merchants were able to keep inventories under control.
Business Activity
Business conditions in the Second District have shown no clear
direction in recent weeks. A higher percentage of purchasing
managers in both Rochester and in Buffalo reported some improvement
in May. In addition, the District's unemployment rate is below the
national average and year-earlier levels. In June, New York's
unemployment rate fell sharply to 5.9 percent from 7.4 percent in
May, while New Jersey's rate of 5.0 percent was half a percentage
point lower than in May. However, disappointing corporate reports
have raised concern in several areas about the future. G.E.
announced that it will phase out small turbine production in
Schenectady (idling 1400), two Syracuse plants have recently closed,
and Kodak's layoffs continue in Rochester. Moreover, a Buffalo auto
supply firm stated that increased employment there due to the
popularity of a new windshield wiper will be short-lived. Production
is soon to be shifted to a plant currently under construction in
Mexico.
Construction and Real Estate
As the homebuilding industry moves into its peak summer period,
demand for new housing remains strong throughout the District.
Reports from many areas are that skilled workers, such as
carpenters, electricians, and plumbers, are currently in short
supply and as a consequence, completion times are being lengthened.
In an attempt to recruit labor from outside the District, some
builders are offering premium wages, thereby adding to upward
pressure on home prices. The high level of building activity is
expected to continue through year-end at least, resulting in record
number of housing starts in some areas. Future activity may also be
brisk. Plans were recently announced to build a 2200 unit
condominium complex in Brooklyn, the biggest private housing
development there in 25 years.
Conditions in the Second District commercial real estate market have been mixed. Leasing activity has been strong in New York City and on Long Island, where construction of new industrial and commercial space also has been very activity. In contrast, the pace of leasing in Fairfield and Westchester counties has been more moderate, and some sluggishness persists in northern New Jersey. Few new construction projects are being started in Fairfield County and New Jersey where vacancy rates remain relatively high. Throughout much of the region, concessions to tenants continue to lower occupancy costs.
Financial Developments
Small banks in the Second District report that delinquency rates on
consumer installment loans have mirrored the national trend: rising
in 1984 and early 1985, and leveling off through the first quarter
of 1986. Delinquency rates at some small District banks had been
running above the national average. However, in the first quarter of
1986, rates at all surveyed banks had fallen below the national
average. Most banks attribute the recent improvement to expanded
facilities for verifying borrowers' income and credit history and to
enhanced collection efforts. Several banks added that they are
raising credit standards, lowering listings on revolving loans, and
purchasing better quality loans.