Beige Book Report: New York
October 27, 1987
In general, the Second District economy registered some improvement since the last report. The latest purchasing managers' surveys showed a sizable increase in firms reporting better business conditions, and retailers experienced satisfactory sales in recent weeks. Office leasing activity was also good, but the residential construction market remains mixed. On the financial side, most small and mid-sized banks have raised their lending rates in response to prime rate increases at money center banks.
Consumer Spending
In part reflecting the lateness of Labor Day this year, sales at
District department stores registered stronger over-the-year gains
in September than in August. Promotionals and back-to-school buying
which typically occur in late August were postponed to early
September this year. However, the remainder of September was also
relatively strong. Our respondents reported year-to-year gains of 11
to 13 percent in September, up from a range of 2 to 8 percent in
August. September sales were generally above plan whereas August
sales at some stores were on or slightly below target.
Items in strong demand during recent weeks were most kinds of apparel, accessories, and home furnishings. One retailer, however, noted a weakness in women's apparel throughout his chain, possibly reflecting disenchantment with some of the more extreme new fashions. Inventories were reported from 4 percent below to 4 percent above plan, which respondents found tolerable.
Business Activity
The improved tone in the District's economy continued in recent
weeks. The latest purchasing managers' surveys from Buffalo and
Rochester showed a sizable increase an the percentage of firms
reporting an improvement in general business conditions. Inventories
were also somewhat higher, but the level was not burdensome.
Plans were announced for several major new projects in the District. These include a proposal for a new residential community of some 1200 condominiums on a waterfront site in New Jersey where an auto assembly plant was formerly located and a project in Brooklyn to build 2500 middle-income apartments along the waterfront together with a public park, promenade, and space for light industrial use. On Long Island work is scheduled to begin in November on a 362- room hotel, resort, and conference center, the first phase of a $150 million mixed-use development which will also include town houses and an office building. In addition, the lifting of a 7-month building ban elsewhere on Long Island is expected to result in the construction of several residential and commercial projects that have been on hold.
Unemployment rates in the District showed little change in September when both New York and New Jersey posted rates of 4.5%. New York City's unemployment rate also fell to 4.5%, its lowest level in 17 years. While unemployment rates have dropped substantially throughout the District in recent years, analysts in some labor markets such as Buffalo view the decline with caution. They attribute much of the improvement to substantial outmigration and the substitution of low-paying service jobs for the high-paying manufacturing positions which once were prevalent.
Construction and Real Estate
The pattern of District residential construction activity was again
mixed in recent weeks. Builders in upstate communities remain quite
busy, and starts in some of these areas are expected to equal last
year's high levels. In the downstate and New Jersey markets,
however, builders continued to experience a slowdown and little
traffic from potential buyers. High prices resulting from a shortage
of suitable land are cited as the major deterrent. The high cost of
new homes is reportedly stimulating a boom in the rebuilding and
expansion of existing homes. In the District as a whole 1987 starts
are expected to trail the year-earlier pace. Observers were
generally reluctant to speculate about the longer-term outlook.
The demand for office space in the District during recent weeks was generally good. A large number of modest-sized leasings strengthened Manhattan's midtown market while the downtown market was bolstered by steady demand and the withdrawal of a large block of space for subleasing. In their continuing battle to induce firms not to relocate, New York City officials were recently heartened by a survey showing that manufacturing firms more than doubled the amount of office space which they leased in Manhattan during the first half of this year compared with a year earlier. City officials are particularly concerned by the abundance of new, less expensive quarters across the Hudson River in New Jersey, fearing that a decline in New Jersey's high vacancy rates will come at the City's expense.
Financial Developments
Most small and mid-sized banks in the Second District have raised
their lending rates in response to the recent increases in the prime
rate charged by money center banks. Despite the rise in interest
rates, demand for commercial loans remains strong, according to
senior officers who cited the robust regional economy as responsible
for the steady demand for business loans. On the retail side, demand
for consumer installment and home mortgage loans also has not been
dampened by rising rates. However, one conspicuously weak segment of
the market is the demand for bank auto loans. Respondents stated
that the generous promotional offers by the auto finance companies
have drastically reduced the market for bank auto loans.