Beige Book Report: New York
December 5, 1990
Recent reports on District developments have been soft to mixed. Most retail contacts had disappointing sales results in October with year-to-year declines for the third consecutive month. Homebuilding activity remains sluggish and unemployment rates rose further to just below the national average. Although a majority of firms in the Buffalo and Rochester purchasing managers' surveys continue to report improvement or no change in business conditions, there has been a sizable increase in the percentage citing worsened conditions. On the positive side, a pickup in office leasing resulted in a decline in Manhattan's primary vacancy rates. Demand for consumer, business and home equity loans at small and medium- size banks fell over the last three months.
Consumer Spending
Most District retail contacts reported disappointing sales results
in October though year-over-year declines were generally smaller
than in September. One respondent stated that October sales were on
target and represented a decided improvement compared with the
preceding two months.
Over-the-year sales results in October ranged from -18% to no change from a year earlier. Big ticket items such as furniture, rugs and other home furnishings continued to be hard hit as they have for several months. Among items in strong demand were cosmetics, higher priced women's apparel and shoes, and men's shirts and ties. Inventories were generally described as on target which in some cases meant well below last year's level. Only one contact reported overstocked shelves.
Respondents tended to be rather pessimistic about the outlook for the upcoming holiday season based on consumer reluctance to spend in recent months. Expressing optimism about the longer term, Barneys New York announced plans to open a huge specialty clothing store in midtown Manhattan in 1992.
Residential Construction and Real Estate
Homebuilding activity remained sluggish in the Second District
during recent weeks. While a shortage of credit for acquisition and
construction loans is part of the problem, a continuing glut of
houses for resale is also a major deterrent to new construction. In
addition, some developers have been downsizing projects already
underway citing slow demand for new middle-income homes and
condominiums which they attributed to growing consumer cautiousness
about the economic outlook.
A pickup in office leasing activity in downtown Manhattan and moderate activity in midtown resulted in a decline in Manhattan's primary vacancy rates recently. Vacancy rates remain at relatively high levels, however, and the continuing addition of older space to the market due to consolidations and restructurings by various firms has caused vacancy rates in the secondary market to climb further. With the large overhang of vacant office space in the region, much controversy still exists concerning the wisdom of proceeding at this time with the construction of several new office towers as part of a Times Square redevelopment project.
Other Business Activity
Both the Buffalo and Rochester surveys of purchasing managers
reported a sizable increase in the percentage of firms with worsened
business conditions in October. However, a majority of firms in both
surveys still reported either improved conditions or no change from
September.
Unemployment rates rose further in the District during October and are now only slightly below the national average. New York's rate moved up to 5.6 percent from 5.5 percent in September while New Jersey's rate increased to 5.5 percent from 5.2 percent. Further dampening the District's labor markets were recent statements by the governors of both states that substantial employment cutbacks may be necessary to close large budget gaps in the current and next fiscal years. New York City is also facing the possibility of sizable layoffs because of a substantial revenue shortfall. In addition, some financial services firms are still downsizing in Manhattan, and Blue Cross and Blue Shield of New Jersey plans to lay off 600 workers in the near future.
Financial Developments
Based on a survey of small and medium-size banks in the Second
District, demand for consumer, business and home equity loans has
fallen over the last three months. Business loan demand appears to
have fallen the most, as nearly all respondents reported a decrease
in that category. Although home-equity loan demand has slowed from
three months earlier, it appears to have leveled off over recent
weeks. Delinquencies have risen for all three categories and bankers
reported a general lengthening of repayment schedules. When asked to
forecast the demand three months from now, a majority of bankers
expected demand for each type of loan—consumer, business and home
equity—to stay the same. Among the remaining bankers, there was
roughly an equal number predicting increasing and decreasing demand
for each type.
No banker reported that his institution was more willing to lend today than three months ago. Roughly equal numbers reported less and unchanged willingness to lend, The decreased willingness took various forms: some banks had increased interest rates on loans; others had raised their qualifying standards by increasing collateral requirements; a few had tightened some loan covenants. No banker reported a lowering of the maximum amount available for a loan, however, or higher fees on business loan commitments. Bankers reporting unchanged willingness to make loans generally had not altered their standards for at least two years.