Beige Book Report: New York
May 1, 1991
Developments in the Second District economy since the last report remained soft to mixed. Sales results at department stores were generally sluggish during February and March though some improvement occurred as the period progressed. Unemployment rose substantially in March and office leasing slowed during recent weeks. On the positive side, the latest surveys of purchasing managers indicate some pickup in business activity among manufacturers in Buffalo and stabilizing in the Rochester area. Moreover, homebuilders noted a substantial increase in traffic though sales remained soft. Most senior officers surveyed at small and midsized banks reported that overall demand for real estate loans in mid-April was the same as a year ago with the majority noting moderate growth in residential real estate loans.
Consumer Spending
Sales results at District department stores were generally sluggish
during February and March, but in some cases where stores had been
planning for sizable over-the-year declines, March results were
actually better than anticipated. Year-to-year changes in March
ranged from -11 percent to +6.8 percent and in February from -16
percent to +1.5 percent. The only contact with a worse performance
in March than in February attributed it to the fact that a major
promotional campaign that occurred in March 1990 is scheduled for
April this year.
Sales of furniture and other durable goods continued slow though one respondent saw signs of a bottoming out. High priced women's apparel also moved slowly but other types of clothing and cosmetics sold relatively well. The inventory situation was mixed. Some were pleased that stocks are below plan since sales have been sluggish while others reported more of an inventory buildup than was intended. All of our contacts were pessimistic about the outlook until the economy revives.
Residential Construction and Real Estate
Homebuilders in most of the District have noted a substantial
increase in traffic in recent weeks though sales remained soft. They
attribute the heightened interest to "the lowest mortgage rates in
years", an improved consumer outlook following the cease fire in the
Gulf, and more resale activity resulting from lowered prices on
existing homes. Observers varied in the expectations for the year
from those simply hoping for a near-term turnaround to those who
anticipate a pretty good year. Mortgage money is considered
plentiful in all areas but bank financing for acquisition and site
development continues to be restricted.
Office leasing slowed in the District during recent weeks as activity in midtown Manhattan declined to its lowest level in three years. Nonetheless, the primary vacancy rate in midtown was unchanged because of virtually no new addition of space. A sizable amount of newly excess space was marketed in downtown Manhattan, however, and the primary vacancy rate rose substantially.
Other Business Activity
March unemployment rates rose in New York by 0.6 percentage point
and in New Jersey by 0.5 percentage point to match the national
average of 6.8 percent. This is the highest level in New York
since May 1986 and in New Jersey since January 1994. The District's
employment outlook is dimmed by several recent announcements of
large-scale cutbacks planned by area companies. Due in large part to
reduced defense spending, Grumman will lay off 1900 more workers by
yearend-three-quarters of them on Long Island-and Metropolitan Life
anticipates the loss of about 1000 jobs as the result of moving
several thousand jobs from its Manhattan headquarters during a
renovation project. In addition, both New York State and New York
City continue discussing the layoff of large numbers of employees to
help close budget gaps. More positively, the Pentagon selected
Sikorsky Aircraft in Fairfield County, Connecticut as part of a team
to build a new generation of combat helicopters with six prototypes
to be built by 1996. The latest surveys of purchasing managers
indicate some pickup in business activity among manufacturers in
Buffalo and stabilizing in the Rochester area. In March, 48 percent
of firms surveyed in Buffalo reported increased production, up from
24 percent in February, and 43 percent reported higher orders, up
from 27 percent in February. Almost three-quarters of the firms in
the Rochester survey reported unchanged business conditions in
February compared with 60 percent in January. Both surveys showed a
sizable increase in the percentage of firms with lower input costs.
Financial Developments
Most senior officers surveyed at small and mid-sized banks in the
Second District reported that overall demand for real estate loans
in mid-April was the same as a year ago. Although almost all
respondents saw no particularly strong or weak sector of the real
estate market, the majority noted moderate growth in the demand for
residential real estate loans, especially among first-time
homebuyers. Of the banks reporting this moderate demand growth, more
than half had an increase in loans for new purchases and the
remainder had an increase in mortgage refinancings. Reasons cited
for the growth in demand were declining home prices and interest
rates as well as a recovery of consumer confidence. When asked about
demand for commercial real estate loans as compared to last year,
responses varied from "still down" to "substantially off". Bankers
cited the soft economy and earlier overbuilding as major factors
behind the current lackluster commercial real estate sector.
Credit standards for real estate loans at the majority of surveyed banks have not changed over the last three months though a few mentioned lower loan to value ratios as well as more caution with respect to land development loans and home equity lines. All respondents stated that over the last three months their qualifying procedures for real estate loans have not changed and nearly all said that their interest rates on real estate loans have been "low and stable" or have declined slightly. Most respondents reported that the ratio of their real estate loans to total loans has not changed over the last year. The only one noting an increase stated that this was mainly due to purchases of RTC assets.