‹ Back to Archive Search

Beige Book Report: New York

January 27, 1988

Developments in the Second District economy varied among sectors during recent weeks. Consumer spending was stronger than many retailers had anticipated and the turmoil in the financial markets had little effect on office leasing outside the New York metropolitan area. Business activity was somewhat mixed, however, and residential construction was seasonally slack. Small and medium- sized banks reported no appreciab1e decline in the demand for consumer loans since the stock market crash.

Consumer Spending
District retailers reported that, on the whole, consumer spending in recent weeks was more spirited than many had anticipated, given the stock market crash and its retrenching effects. While sales in the District were somewhat weak during the first half of November, they strengthened as the month progressed, and during December were either on or slightly below plan. Because of exceptionally heavy discounting during the Christmas season, however, several retailers stated that they anticipate a substantial drain on profit margins.

Respondents reported over-the-year sales changes ranging from -2.5 percent to +9 percent in November and from +6 percent to +12 percent in December. An annual survey by the Retail Council of New York State, which primarily covers stores outside New York City, found an average increase of 5 to 6 percent during the Thanksgiving Friday to Christmas Sunday period.

Items in good demand were certain types of women's apparel, perfumes, jewelry, and other accessories while sportswear and electronics sold poorly. An unusually large number of foreign buyers was noted at several New York stores, attributed to the relative strength of most foreign currencies.

Business Activity
Economic conditions in the Second District have been somewhat mixed since the last report. While purchasing agents in the Rochester area noted only a seasonal slowdown in manufacturing activity, responses from firms in Buffalo indicate that some slackening of business activity may have occurred there. In New York City additional cutbacks are taking place in the brokerage and banking sectors as a result of the stock market crash as well as some basic restructuring.

Despite the recent and continuing layoffs in New York City, District unemployment rates remain lower than the national average. New Jersey posted a rate of 3.9 percent in December while New York's was a slightly higher 4.5 percent. New York City's rate of 5.0 percent also was relatively low. With more layoffs scheduled in the City during the weeks ahead, many observers anticipate a negative impact on District unemployment rates in the near future. Since announcements of new and expanding industries have been made in other areas, however, the net effect on District employment remains to be seen.

Construction and Real Estate
Homebuilding activity has been seasonally slack in much of the District, but ground was broken in December for an 1107-unit multifamily development on Roosevelt Island, a part of New York City. This is the first residential construction on that island in more than ten years and, in contrast to the luxury condominiums which characterize most new apartment buildings in the City, will be primarily middle-income rental housing. Another large development which is slated to start in February is the construction of 1000 units of townhouses and condominium apartments as part of a $225 million mixed-use project in central New Jersey. In another attempt to deal with the shortage of affordable housing, more than 24 employers on Long Island recently formed a partnership to foster additional middle-income housing citing the increasing difficulty in attracting and keeping employees there due to the high price of homes.

The turmoil in the financial markets has apparently had little or no effect on office leasing outside the New York metropolitan area. However, activity has slowed in downtown and midtown Manhattan and on Long Island, and many observers expect vacancy rates to rise in the wake of continuing employment cutbacks at brokerage and banking firms. Citing this softening real estate market, five commodity exchanges recently abandoned plans to build a 65-story skyscraper in downtown Manhattan, and considerable uncertainty surrounds the proposal for a large midtown project which originally was to have housed a major brokerage firm.

Financial Developments
Senior officers of small and medium-sized banks in the Second District reported that they have not noticed an appreciable decline in the demand for consumer loans since the stock market crash. Most did state that demand is not as strong as it was a year ago, but several linked this to the Tax Reform Act provision reducing interest expense deductions rather than to the crash. Many officers noted delinquencies on their consumer loans have risen recently, though not to alarming levels. Those surveyed expressed uncertainty as to whether the rise should be attributed to the crash or to the normal seasonal increase in delinquencies following the holiday season. In spite of the rising delinquency rates, only one bank in the survey has tightened credit standards for loan applicants in recent months. Consumer demand for mortgages and home equity loans is generally weak, especially in the suburbs surrounding New York City. Though the residential real estate market is typically slow during the winter months, some bankers thought that the crash may have made some individuals more reluctant to purchase homes. In contrast, demand for bank credit cards remains steady.