Beige Book Report: New York
September 19, 1990
Developments in the Second District economy continued mixed to somewhat soft during recent weeks. On the positive side, unemployment rates remained below the national average and the pace of office leasing was good in much of the region. Retailers reported disappointing sales results, however, and homebuilders reported no improvement in market conditions. Most respondents surveyed at small and medium-size banks described current economic conditions as soft or slow.
Consumer Spending
District retailers reported disappointing sales results since they
were last contacted and a worsening of conditions as the period
progressed. All our contacts reported year-over-year declines in
August as consumers seemed increasingly reluctant to spend. This
compares with over-the-year sales gains that were somewhat below
plan but, in most cases, positive during July. Big ticket items such
as furniture and rugs were especially hard-hit and other types of
home furnishing were also weak. Sales of men's and women's apparel
showed some improvement, though.
Over-the-year sales results in July ranged widely-from -6 percent to +14 percent-but in August results clustered in a -10 percent to -2 percent range. Despite the below-plan sales volume, however, inventories were reported at comfortable levels and, in some cases, below plan. One retailer did remark that if consumer spending continues weak, a cutback in the targeted level of inventories will probably take place.
Residential Construction and Real Estate
District homebuilders report no improvement in market conditions
during recent weeks. In downstate New York and northern New Jersey
residential construction activity continues to be very slow and
respondents do not anticipate an improvement in the foreseeable
future. Housing starts have also declined in some upstate New York
areas, but the over-the-year slowdown was from a previously high
level of activity and has not been as severe as in other parts of
the region. The shortage of credit for acquisition and construction
loans continues to be a problem. In addition, some respondents noted
that potential buyers are hesitant because of softness in the
economy and uncertainty about the impact of the Middle East crisis.
The pace of office leasing remained good in much of the District during recent weeks as tenants continued to avail themselves of generous landlord concessions. Leasing in midtown Manhattan was the highest in several months and leasing in downtown Manhattan also expanded. However, with the addition of two newly completed buildings in mid-Manhattan, the midtown vacancy rate moved somewhat higher though the downtown rate held steady. Westchester County reports a reduction in the amount of leasing activity as very few large-scale transactions have recently taken place, and the absorption of vacant space in northern New Jersey has also slowed.
Other Business Activity
District unemployment rates remained below the national average in
August. New York's rate declined to 5.0 percent from 5.3 percent in
July while New Jersey's rate was unchanged at 4.8 percent.
Employment conditions vary greatly within the District, however,
with increased weakness in the New York metropolitan area coupled
with strength in some other areas. A recent BLS study found that
during the first five months of this year a loss of several thousand
private sector jobs occurred in New York City and northeastern New
Jersey--the first drop in local private employment since 1982. On
the other hand, some areas in upstate New York and parts of New
Jersey have reportedly been experiencing labor shortages.
The percentage of Buffalo purchasing managers reporting an increase in new orders rebounded in August after a sharp drop in July. The percentage with stable or greater production also rose. In the July survey of Rochester managers, however, only 25 percent of respondents anticipated improved conditions over the next three months, down from 47 percent in June. The outlook for capital investment in both areas was described as generally weak.
Financial Developments
Most respondents surveyed at small and medium-size banks in the
District described current economic conditions as soft or slow. All
of the banks that make business loans reported weaker demand, while
demand for consumer and home equity loans has been mixed. Although
several bankers stated that real estate loan demand had declined
significantly, two bankers noted increased activity in August after
a decline in July.
Just under half of the bankers surveyed said that they had begun to tighten credit standards on all types of loans. Over sixty percent of those making business loans had tightened standards on those loans. While none of the surveyed banks have raised interest rates as a means of tightening credit, about half have reduced the maximum lines of credit available to new borrowers and increased collateral requirements. One banker stated that his bank will scrutinize loan applications more carefully because of an anticipated recession. All of the bankers tightening credit gave a less favorable economic outlook as the main reason, and almost three quarters cited a deterioration in the quality of their loan portfolios as well. About half mentioned that they had faced more loan defaults and increasing regulatory pressures. Of the banks which had not tightened credit only one expected to do so in the near future. Most of the others will continue to lend both because they have an adequate supply of funds, and because qualified borrowers are still in the market.