Beige Book Report: New York
October 23, 1986
The Second District's economy showed some modest improvement in recent weeks. Retailers had sales gains that were generally higher than expected end residential construction continued strong. Business activity was stable to improved, while some seasonal pickup in the demand for office space occurred. As the general level of interest rates has declined, small District banks report increased pressure to reduce their lending rates.
Consumer Spending
Consumer spending was stronger than expected at a number of District
stores during August and September, and retailers reported sales
gains well above target. Sales were bolstered by domestic tourists
who continued visiting the District to view the refurbished Statue
of Liberty, and by foreign buyers responding to the dollar's
decline. As a result of strong sales, inventories are currently at
or below desired levels in each of the region.
During August, over-the-year sales growth in the District ranged from 10-20%, while September gains were in a 10-15% range. One retail chain attributed a better-than-average showing among its stores in the District to more favorable local weather and fewer major economic problems such as those currently affecting the farm and oil regions. Among those items generally cited as in strong demand recently were hone furnishings, men's and women's apparel, and various kinds of accessories.
With regard to the outlook, a recent survey (conducted by a national accounting firm) of some 250 upstate retailers indicated widespread optimism concerning sales gains and control over inventories in the fall and holiday seasons.
Business Activity
The improved tone in the Second District's economy continued during
recent weeks though few additional gains have been noted. Purchasing
managers in the Rochester area, for example, report that their
economy remains strong with 88 percent of them characterizing
general business conditions as stable or improved in September. And
in the Albany area, while some businessmen described the local
economy as plateaued, others pointed to a pickup in business
conditions during the third quarter.
Overall employment has expanded further in the District, though the manufacturing sector continues to contract. The September unemployment rates in New York and New Jersey were 6.1 percent and 4.7 percent, respectively, well below the national average. In addition, the over-the-year declines in the New York and New Jersey unemployment rates of half a percentage point surpassed the 0.1 percentage point national decline. Concerning the future, with Congress currently debating whether or not to fund further production of jet trainer planes at Fairchild Republic, considerable apprehension exists among the 3500 Long Island employees whose jobs at that plant are at stake.
Construction and Real Estate
The pace of activity among District homebuilders is still vigorous
with apparently no letup in sight. Builders are encountering no
shortage of buyers, though in some areas they continue to have
difficulty in completing construction on time. Skilled labor remains
in short supply in these areas and the problem may worsen since many
summer workers have returned to college. Home prices continue rising
and, reportedly as a result, for the first time in several years
some upstate builders are engaged in speculative construction. Since
demand remains strong, these builders prefer to sell after
completion in anticipation of securing a higher price than could be
obtained by signing a contract in advance.
Some seasonal pickup in commercial and industrial leasing activity has occurred in recent weeks, but conditions in the Second District have otherwise shown little change. Leasing activity in downtown Manhattan reportedly is somewhat stronger than in midtown as demand for space in new financial district buildings remains strong. A more than ample supply of office space remains in northern New Jersey and Fairfield and Westchester counties. However, Westchester has recently been experiencing a flurry of leasing activity as several large firms from outside the county have taken space.
Financial Developments
Small and mid-size banks in the Second District report increasing
pressure to lower their lending rates as other interest rates have
declined. In part, the pressure exists because many bank loans, such
as corporate loans, commercial mortgages, and some consumer loans,
are directly linked to the prime rate. In addition, competition has
been particularly strong for home equity and automobile loans.
Despite a lowering of their home and auto loan rates, however,
several banks have found their share of these markets considerably
reduced. Moreover, as rates on business and consumer loans declined,
so did the spread between interest earned and that paid on deposit
accounts. As a result, surveyed banks have been lowering the rates
they pay on variable rate accounts-CDs, NOWs and money market
accounts. Most expect a further narrowing of the interest rate
spread as their higher earning securities and mortgages mature.
Consequently, some banks are considering lowering rates on "fixed
rate" accounts, such as passbook savings, despite widespread
reluctance to pursue this option.