March 13, 1991
Recent reports on District developments have been soft to mixed. Sales results at department stores have continued below targeted levels and District unemployment rates rose substantially in January to levels above the national average. More positively, homebuilders noted a recent upturn in buyer interest though the market remains soft, and office leasing activity stepped up. The majority of officers surveyed at small and medium-size banks reported that loan demand is generally weak.
Consumer Spending
Sales results at District department stores in January were below
targeted levels though generally somewhat better than parent
company's nationwide averages. Contacts reported good results early
in January but a decided slowdown in sales following the start of
the Persian Gulf war. However, a brief period of cold weather helped
to move items such as outerwear and sweaters.
Most retailers reported over-the-year sales gains in January ranging from 0.5 percent to 3.5 percent though one chain had a year-to-year decline. Big ticket items such as furniture, rugs and other home furnishings continued to be hard hit as they have for several months. Fall and winter apparel moved well at most stores after postholiday markdowns to make room for new spring merchandise. As a result, inventories were described as on target and, in one case, below planned levels. Retailers are generally cautious about the near-term outlook in view of the recession and consumer concern about the likelihood of further layoffs.
Residential Construction and Real Estate
Homebuilders in several parts of the District report an upturn in
buyer interest during recent weeks though the market continues to be
described as basically soft. Potential buyers have been visiting
model homes in greater numbers and prices on existing homes have
fallen sufficiently in some areas to motivate purchases by first-
time homeowners. Lower mortgage rates and greater optimism about the
Gulf situation were mentioned as contributing factors. Many
participants are now cautiously optimistic that some improvement
over last year will occur. Builders continue to report some
difficulty in obtaining adequate financing, however.
While District office leasing activity has recently stepped up, little or no improvement in office vacancy rates has resulted because of the continued marketing of new or no longer needed space. In fact, in mid-Manhattan, where new office towers are still rising, the vacancy rate rose by almost a percentage point between November and January and is now about three percentage points above January 1990. Vacancy rates on District retail space have also been increasing.
Other Business Activity
District unemployment rates rose substantially in January to levels
above the national average. New York's rate increased to 6.5 percent
from 5.5 percent in December while New Jersey's rate rose to 6.4
percent from 5.9 percent. In a separate report, the New York
Department of Labor noted that during 1990, job losses in the state
were greater than in any year since 1975. Further dampening the
District' s labor markets were announcements of yet another round of
large-scale layoffs by three financial firms and the Navy's
cancellation of a contract with Grumman Corporation.
Both the Buffalo and Rochester surveys of purchasing managers reported an increase in the percentage of firms with improved business conditions in January following a large decline during December. Two-thirds of the respondents in Rochester anticipate stable business conditions over the next three months.
Financial Developments
The majority of loan officers surveyed at small and medium-size
banks in the District report that loan demand is generally weak, as
indicated by a decline in loan applications. Most bankers noted that
consumer credit is the weakest sector although business loan demand
has also declined. However, respondents noted that mortgage
refinancing has increased significantly as rates on fixed rate
mortgages have declined relative to those on variable rate
mortgages. While loan inquiries have recently increased, customers
reportedly seem reluctant to take on additional debt, despite
generally lower interest rates, given the uncertain economic
conditions. In order to stimulate loan demand, all the banks
surveyed are undertaking more aggressive advertising campaigns.
However, some officers expressed doubts that such efforts will
stimulate much new demand until confidence in the economy improves.
Although the majority of respondents said that their standards for
qualified customers have not changed over the last year, some have
tightened credit requirements, particularly in evaluating
applications for real estate related loans.