Beige Book Report: New York
November 1, 1989
A mixed pattern of developments continued in the Second District economy during recent weeks. Unemployment rates were at or below the national level, though above levels recorded early this year, and the pace of office leasing picked up. Sales at department stores and homebuilding activity varied across the District. Demand for commercial business and real estate loans at small and medium-sized banks was moderate to slow.
Consumer Spending
Sales results at District department stores were mixed during
September. Most respondents reported that sales fell below targeted
levels, although a few experienced demand that met or exceeded plan.
Some chain retailers noted a recent slowdown in the northeast in
general relative to the rest of the nation. Over-the-year sales
changes in September ranged from -1.0 percent to +13.2 percent among
District retail contacts. Children's back-to-school items were the
biggest sellers followed by women's and junior apparel. However,
sales of big ticket items like furniture and rugs remained weak and
women's and men's accessories also moved slowly.
With the exception of one chain that has stocks somewhat above desired levels, department store contacts described their current inventories as being in good shape. Most said they would continue a close monitoring of stocks because their outlook is not particularly optimistic.
Residential Construction and Real Estate
The pace of homebuilding activity continues to vary across the
District. Demand for new housing remains strong in upstate New York
communities such as Buffalo and Syracuse where current activity is
comparable to the relatively high levels of 1988. A glut of homes
for resale continues to plague much of the New York metropolitan
area, however, with price markdowns and other concessions
increasingly being offered. One notable exception is a New Jersey
developer that builds relatively low-priced housing, primarily for
first-time buyers: in one of its subdivisions 130 new homes recently
sold over the course of a single weekend, and hundreds of phone
calls were received at the company's main office regarding another
new 1200-unit development before the on-site sales office was
actually opened.
Office leasing activity picked up recently in the District. The vacancy rate declined in midtown Manhattan as activity reached its highest level this year. Leasing activity has also been strong in some other areas of the District as well. Opinions are mixed concerning what lies ahead, however. Several very large leases are reportedly under negotiation by companies seeking new headquarters in midtown Manhattan, but with 17 more office buildings scheduled for completion there over the next two years, it is unclear what will happen to the vacancy rate in coming months. The opposite pattern holds in downtown Manhattan. The vacancy rate has risen in the past few months as further consolidations at brokerage firms have occurred. However, no new buildings are planned in that area after this year.
Other Reports on Business Activity
District unemployment rates are currently at or below the national
level with September readings or 5.4 percent in New York and 4.6
percent in New Jersey. Nonetheless, rates in both states have risen
in recent months. Because of virtually no increase in District
employment over the last several months and its rising unemployment
rates, some recent articles have voiced concern that the region will
face a rerun or the stagnant employment picture of the 1970s without
some improvement in its business climate.
Some 40 percent of purchasing managers in Buffalo and Rochester reported improved business conditions in September, up from 33 percent in the previous surveys. Substantially more firms reported an improvement than reported a deterioration, although the number of firms in both cities reporting worse conditions increased. With regard to the outlook, a recent survey of 550 chief executives of medium-sized firms in the region found that 88 percent plan either to expand their businesses or to maintain current employment levels during 1990.
Several new developments were announced or undertaken since the last report. Ford Motor Company plans to spend $285 million retooling its Edison, New Jersey, plant for producing pickup trucks instead of small cars. Also in New Jersey, ground was broken for a $250 million pharmaceutical research facility at the Schering-Plough campus in Kenilworth. In Yonkers, New York, a Japanese-owned rail car manufacturer was awarded a $170 million contract to build the first 132 subway cars for a new mass transit system under construction in Taiwan. The three-year-old plant has already done work for local transit companies and is currently working on contracts to build rail coaches for Massachusetts and "people-mover" cars for the Las Vegas airport.
Financial Developments
Demand for commercial business and real estate loans at small- and
medium-sized banks in the Second District has been moderate to slow
in recent weeks. Half of the respondents surveyed reported slow
demand, citing concern about the economy and a weak local real
estate market. None reported strong demand for commercial loans and
all stated that the recent leveling off of interest rates has had no
appreciable effect on demand. Most respondents anticipate that the
demand for these loans will continue to be slow to moderate through
the first half of 1990.
No bankers reported a change in the short-term to long-term loan mix. Most stated that the majority of their loans were short to intermediate-term (less than 5 years), with commercial real estate loans comprising the bulk of long-term loan portfolios. Of all the banks surveyed, only one purchased merger and acquisition loans on the secondary market. A representative from this bank said that each deal is examined separately because of the risk with highly leveraged transactions.