May 2, 1990
Developments in the Second District economy since the last report have again been mixed, with no clear signs of overall strengthening or weakening. Homebuilders report some increased buyer interest with the arrival of spring, and the pace of office leasing has been good in many areas. Sales results at District department stores were mixed, however, in recent weeks and unemployment rates showed little change. Most officers at small and medium-sized banks noted an over- the-year weakening in commercial loan demand.
Consumer Spending
Sales results at District department sales were mixed in recent
weeks with some at or above targeted levels and others falling
below. Year-to-year changes during February range between -3 percent
and +8 percent while the March range was -9 percent to +15 percent.
To obtain a clearer picture of their Easter season performance,
however, most respondents intend to look at the continued March and
April results since the holiday occurred a month later this year
than last.
In general, women's apparel continued to be the strongest selling item with some retailers noting a pickup in men's apparel as well. Sales of furniture and some furnishings tended to be sluggish, however, though one contact reported strong demand for floor covering and bedding. Inventories are generally on target, due in part to cautious stocking for the spring season. Merchandise is reportedly still below desired levels at some Campeau stores, though most suppliers have now resumed shipments to them. With the recently begun liquidation of yet another District department store chain and the closing of many small Financial District stores in the wake of the cutbacks in that area, some contacts expressed concern about the local retail industry.
Residential Construction and Real Estate
District homebuilders report some increased buyer interest with the
arrival or spring, but most expect that regional housing starts will
decline further in 1990. In the face of a continuing glut of
existing homes for resale and, in some areas, a number of new houses
and condos on the market as well, additional price markdowns and
other concessions are being fostered in much of the New York
metropolitan area and further reductions are seen as possible.
However, in upstate and western New York, where demand remains
relatively strong, home prices increased at double digit rates in
some areas during 1989 and the uptrend is expected to continue this
year.
The pace of office leasing has recently been good in much of the District, with tenants reportedly availing themselves of generous landlord concessions. However, as substantial amounts of both new and existing space continued to be marketed, Manhattan office vacancy rates moved somewhat higher. As a result, reactions have been mixed to the announcement that, after a six-year legal battle, New York State has finally acquired most of the 13-acre site for the redevelopment of the Times square area. While the transformation of that badly deteriorated area is generally applauded, many critics are apprehensive because the plan includes the addition of four more large office towers in the midtown area.
Other Business Activity
District unemployment rates showed little change in March. New
Jersey's rate rose 0.2 percentage point from February to 4.7% while
New York's rate was unchanged at 5.0%. While these rates remain
below the national average, they have deteriorated both absolutely
and relative to the nation over the past year. A recent U. S.
Department or Labor report stated that job growth in New York State
fell to a 7-year low in 1989 due to a faltering downstate economy
and major manufacturing losses throughout the state. A positive
development for District employment is General Motor's announced
plans to spend $140 million retooling its Linden, New Jersey plant
for the production of light trucks. The plant had been scheduled to
end auto production next year.
The March survey or Buffalo purchasing managers showed an increase in the percentage or firms reporting improvement or stability in production and new orders. Eighty percent of the managers noted stable input prices, up from 64 percent in February. The Department of Labor study mentioned above cited Buffalo as one of three metropolitan areas in which most of New York State's job growth occurred in 1989.
Reports from firms in the Second District suggest that in most instances operations have not been affected by any shift toward more restrictive lending practices. While some manufacturers and homebuilders noted a withdrawing of credit lines and increased collateral requirements, others, especially in upstate and western New York, have seen little or no evidence of credit tightening.
Financial Developments
Based on a survey of senior officers at small and medium-sized banks
in the Second District, demand for commercial loans is weaker than a
year ago. Most bankers agreed that the general decline in interest
rates over the last year failed to stimulate much loan activity, and
cited the weak economy and cautious investing as the main factors
for falling demand. One banker noted that any interest-rate-induced
increase "would have teen offset by the current economic climate".
When asked if any particular sectors showed unusually strong or weak
demand, two-thirds of the bankers cited a weakness in real estate
and manufacturing loans, while a couple noted strength among
retailers. Almost all respondents described their local economies as
stable or weak. Signs of weakness cited were higher vacancy rates,
more delinquent loans, contracting real estate markets and layoffs.
The two bankers who characterized their economies as strong also
described them as diversified. When asked about expectations of
future loan demand, the majority of the bankers forecasted stable or
lower demand. The bankers anticipate weak real estate markets and
cautious attitudes by both investors and lenders for the remainder
of 1990.