Beige Book Report: New York
December 1, 1986
The modest uptrend in the Second District economy continued in recent weeks. Retailers reported over-the-year sales gains in October ranging from moderate to very good and residential building remained strong. Business activity was generally steady to improved, though leasing of office space moderated in some areas. Small Second District banks report that home equity lines of credit represent only a small portion of their consumer loans.
Consumer Spending
Second District retail sales showed further over-the-year
improvement during October with respondents describing gains as
ranging from moderate to very good. Purchases by foreign visitors
continued to be an important factor, particularly in New York City.
Apparel, accessories, furniture and home furnishings were cited as
items in generally strong demand.
Sales increases during October were from 6-13 percent above year- earlier levels and, in most cases, were 2 to 3 percent higher than targeted. As a result, inventories are well under control and respondents do not anticipate the need for heavy promotional activity in order to move merchandise during the coming Christmas season. Retailers generally expect moderate over-the—year gains in holiday sales but one respondent, whose Christmas catalogue orders have been strong, is looking for a double-digit increase.
Business Activity
Little change occurred in the Second District's economic expansion
since the last meeting. Eighty percent or more of purchasing
managers surveyed in Rochester and Buffalo reported that business
conditions were stable or improved during October and three-fourths
of the managers in the Syracuse area's third quarter survey also
gave that response. While inventories were generally described as at
satisfactory levels, an increasing percentage of managers has been
experiencing a rise in commodity prices.
News concerning the District's employment outlook has been mixed in recent weeks. On the negative side, G.E. plans to end its color TV tube operations in upstate New York, where it continues phasing out large engine production, and ITT may cut back its international operations in New York City. On the other hand, several thousand jobs in the chemical and transportation equipment industries have been retained due to the successful negotiation of some longstanding problems. In addition, a new railway car plant has opened in Yonkers and plans for a sizable new operation in the garment industry have been announced. As of October, unemployment rates in New York State and New Jersey remained 1 1/2 percentage points below the national average.
With regard to the District's longer term development, New Jersey officials recently announced plans for the first new rail line in the New York metropolitan region in 50 years. The $825 million trolley-bus system will link billions of dollars of proposed residential and commercial projects along 15 miles of the Hudson River waterfront.
Construction and Real Estate
Activity among District homebuilders continued strong in recent
weeks, though the pace was less hectic than at the height of the
season in the spring and summer. After two years or more at a record
pace, builders in several areas report that pent-up demand seems
finally to have been satisfied, and they anticipate a more normal
but healthy rate of activity in 1987. While some seasonal slack will
occur over the next few months, a number of builders have already
signed contracts for homes to be constructed in the spring of next
year.
Leasing activity in the commercial real estate market was at a slow to moderate pace in much of the Second District during recent weeks. A major exception was downtown Manhattan where leasing of new financial center buildings remained strong. While no dramatic absorption of space occurred in areas such as northern New Jersey, Fairfield County, and Westchester County, where more than ample supplies of office space exist, few major new projects have been undertaken there in recent months. As a result, vacancy rates in these areas have shown over-the-year declines. However, in downtown and mid-Manhattan, where many new buildings have come on line, rates have moved somewhat higher though they are still well below the national average.
Financial Developments
Small banks in the Second District report that home equity lines of
credit currently represent only a small portion of their outstanding
consumer loans. While all of the surveyed banks have increased their
efforts to market the product, each expected only moderate growth in
its volume of these loans through 1987. Several banks believe that
more rapid growth would be restrained by competition from other
banks and non-banks and also by a continued surge in second
mortgages and refinancing arrangements. Loan officers state that the
most common uses of the credit line include consolidating debt,
financing education, and providing additional cash flow for
business. The banks suggested that they can prevent consumers from
using the line of credit as a proxy for other types of consumer
loans by providing counseling and by maintaining high underwriting
standards. However, only one bank indicated that it required its
applicants to provide information on how the money is to be used,
and none used this type of information as a criterion for lending.