March 18, 1992
Reports on District developments in recent weeks were mixed, as has generally been the case for some time. Department store sales in the District were stronger than expected in January and February, with most stores reporting no inventory problems. At the same time, homebuilders in the District reported a significant increase in customer interest, with actual sales improving though still light. By contrast, labor market developments continued to be unfavorable in the District with state unemployment rates rising and with a continued heavy schedule of planned corporate layoffs. Loan officers at small and midsized banks report only few changes in their willingness to lend as compared with their practices two months ago.
Consumer Spending
Most contacts at District department stores reported stronger-than-
expected sales in both January and February and positive over-the-
year changes. However, while generally pleased with the results,
retailers cited the Persian Gulf War as a deterrent last year and
exceptional promotional activities this year as major factors in the
recent improvement. Year-to-year gains ranged from 5 to 10 percent
in January and 5 to 7 percent in February. The major exception was a
chain with a sizable over-the-year decline in January.
Most categories of merchandise registered year-to-year gains in the first two months of the year with the strongest results in women's and men's apparel, cosmetics and accessories. In addition, for the first time in many months, all respondents noted some improvement in furniture sales. With the relatively strong sales performances, most retailers reported inventories in good shape and on plan or a little below.
The retail scene in the District has undergone some churning in recent weeks with one major group emerging from two years in Chapter 11 bankruptcy and several other chains filing for protection under that chapter. While some chains are having difficulty, a large jewelry and houseware chain announced plans to build a $194 million shopping center on Long Island and several national and foreign retailers are entering the New York City market now that rents are lower and desirable space is available.
Residential Construction and Real Estate Homebuilders in several parts of the District report a decided pickup in buyer interest as evidenced by increased traffic and phone inquiries. However, the volume of sales has been light, although improved, as consumers remain hesitant due to economic uncertainties and the possibility of future tax incentives for homebuyers. In general, builders now expect this year to show some modest improvement over 1991. Credit conditions reportedly are still tight, particularly for acquisition and development loans, though money for construction loans has become more available.
Office leasing activity increased somewhat in recent weeks but with the continued release of excess space resulting from corporate restructuring and relocation, vacancy rates in much of the District have been rising. Moreover, some areas have also had new office construction coming on line, adding further upward pressure on vacancy rates. The latest data show office vacancy rates of 20 percent or more in northern New Jersey, Fairfield County, (Connecticut), Long Island and Buffalo. While rates in Westchester County, Manhattan and Syracuse remain below the national average of about 19 percent, most of them have been rising as well.
Other Business Activity
District unemployment rates rose in February to their highest levels
since the early 1980s. New York's rate climbed to 8.9 percent--the
second highest among eleven large states--from 8.4 percent in
January while New Jersey's jumped to 7.6 percent from 6.8 percent in
January. The District's employment outlook was dimmed further by
General Motors' announced plan to close its Westchester County
plant, with almost 3500 jobs, by mid-1995. More immediately,
thousands of layoffs are scheduled to take place this year and next
at several large banks, A.T.&T. and NYNEX, the regional telephone
company. In addition, I.B.M. will be cutting back substantially
through early retirement and attrition. On the positive side, G.M.
will invest $65 million in updating and technological improvement at
two Buffalo area plants and Continental Airlines plans to add up to
1000 jobs in northern New Jersey.
The February survey of Buffalo purchasing managers showed somewhat higher percentages of firms reporting reduced new orders and production following substantial improvements in these categories in January. There was also a sharp increase in the percentage reporting higher input prices in February. The January survey of Rochester purchasing managers, however, showed a decrease in the percentage anticipating a deterioration of business conditions over the next three months.
Financial Developments
Most senior loan officers surveyed at small and midsized banks in
the Second District indicated no change in their willingness to lend
as compared with two months ago, although a few respondents did
report tightening their credit standards. Consumer loan demand
remained weak. Demand for residential mortgages continued to rise
sharply due to the surge in mortgage refinancings resulting from the
drop in interest rates two months ago. Almost all surveyed loan
officers indicated that they do not expect changes in their lending
practices or deposit rates when lower reserve requirements become
effective April 2. A majority of respondents reported no change or a
decrease in loan delinquency rates during January or February,
contrary to the usual pattern of increased delinquencies after the
holidays.