Beige Book Report: New York
September 18, 1991
Reports on District developments remained mixed in recent weeks. Relatively little new construction together with improved leasing activity resulted in a decline in office vacancy rates, and several areas reported a pickup in home sales, particularly to first time homebuyers. The August survey of Buffalo purchasing managers showed more firms reporting higher output and a substantial drop in those reporting lower output. District department store sales results for July and August were mixed, however. Moreover, unemployment rates in New York and New Jersey rose in August after declining in July. Senior loan officers at small and mid-sized banks reported reduced loan demand.
Consumer Spending
Sales results varied among District department stores during July
and August though all respondents reported an improvement from June.
Over-the-year changes in July ranged from -5.0 percent to +9.6
percent with several stores posting better-than-targeted sales.
Over-the-year changes in August ranged from -3. 0 percent to 6.0
percent as most contacts met their modest sales plans. The strongest
selling items in July and August were women's apparel and
accessories followed by men's and children's wear. However, most
contacts reported that back-to-school sales were slower than
anticipated. Some pickup in home furnishings occurred but
respondents noted continued consumer reluctance to purchasing big
ticket items.
Due to tight monitoring and, in some cases, to better-than-expected sales, inventories are generally at quite satisfactory levels though one chain reported them above plan. Contacts remain cautious about the outlook for consumer spending, especially those who experienced disappointing back-to-school results.
Residential Construction and Real Estate
Several areas in the District report a pickup in home sales in
recent weeks, particularly to first-time homebuyers who have watched
prices decline over the past two or three years and are now finding
homes at affordable levels. Lower mortgage rates have also
contributed to the recent improvement. In addition, brokers in
Manhattan report increased investment demand for condominium
apartments from foreigners whose currency has appreciated relative
to the dollar. Much of the recent buying has been in the existing
home market, however, and thus far, homebuilders have not
experienced much impetus for new construction. As a result, they
anticipate that sales of new homes this year will be little changed
from last year's low levels. A shortage of credit for acquisition
and construction loans continues in much of the District.
Relatively little new construction of office buildings and a continuing improvement in office leasing activity have caused vacancy rates to decline in several parts of the District. The declines have been modest, however, and rates remain high in many areas. Leasing in midtown Manhattan during July was the strongest this year and the primary vacancy rate edged down for the second consecutive month. In downtown Manhattan the July decline in the primary vacancy rate was the third in the last four months. The planned merger between Chemical Bank and Manufacturers Hanover is expected to result in a sizable addition of excess space in both downtown and midtown Manhattan.
Other Staginess Activity
Continuing the volatile pattern of the last several months,
unemployment rates in New York and New Jersey rose 0.4 percentage
point in August after declines of 0.6 and 0.3 percentage point,
respectively, in July. New York' s unemployment rate in August was
7.5 percent and New Jersey's was 6.7 percent. Both states have been
reporting nonfarm employment at below year-earlier levels for a
number of months, a pattern which continued in July. With the impact
of recently announced mergers and cutbacks yet to be felt, few
observers anticipate a near-term improvement in the District's
employment picture.
The August survey of Buffalo purchasing managers showed an increase in firms with greater output and a substantial drop-from 41 percent in July to 18 percent in August-in those with smaller output. The percentage with the same or increased new orders also rose slightly. The July survey of purchasing managers in Rochester showed a sizable rise in the percentage anticipating improved business conditions over the next three months.
Financial Developments
Most senior loan officers surveyed at small and midsized banks in
the Second District reported that while their willingness to extend
loans remains unchanged from three months ago, they are facing
reduced loan demand. In particular, consumer demand for installment
credit and automobile loans has slowed, while demand for home equity
loans has not shown a trend in either direction. The majority of
senior officers also indicated lower delinquency rates on all
consumer loans compared with three months earlier.
Most loan officers reported that their interest rates have remained stable and their credit standards unchanged over the last three months. However, a few respondents are conducting more rigorous background and employment verifications of potential borrowers. The credit quality of borrowers at the majority of surveyed banks has not changed in recent months.