August 5, 1992
Reports on District developments continued mixed in recent weeks. Department store sales results varied widely in June though most contacts reported better-than-expected gains. Office leasing activity showed some further improvement and several areas experienced a decline in vacancy rates. Conditions in the residential construction market have been somewhat mixed, however, and unemployment rates rose in June to their highest levels since the early 1980s. Most loan officers surveyed at small and midsized banks noted no change in their willingness to lend but lackluster demand.
Consumer Spending
Sales results at District department stores varied widely in June
though most contacts reported better-than-expected gains. The
targeted levels were quite modest in some cases, however, and one
chain had results that were below both plan and substantially below
its year-earlier level. When compared with June 1991 changes ranged
from -11 percent to +l7 percent with most stores reporting gains
between 4 and 9 percent.
Despite unusually cool weather, demand for men's and women's clothing was strong and one chain experienced its best Father's Day week in four years. Furniture and other household items also sold well. As a result of the generally positive sales results, inventories at most department stores were on or somewhat below plan. With regard to the outlook, respondents were still fairly cautious though they were hopeful that visitors to New York's Columbus quincentennial celebration and the Democratic convention would provide a significant stimulus to July sales.
Residential Construction and Real Estate Conditions in the residential construction market have been somewhat mixed in recent weeks. Homebuilders in two western and central New York areas reported a good response to this year's spring home shows with considerably better sales than a year earlier and some pickup in new orders as well. Sales were also off to a good start at a New Jersey site where 81 homes will soon rise. In other areas, however, activity was reportedly slow as consumers remained reluctant in response to continued layoffs and economic uncertainty.
Office leasing activity showed some further improvement as firms continued to avail themselves of lower rents and other concessions in order to upgrade their quarters. Several observers noted that, as commercial space is becoming more competitive with outside areas, some firms are canceling plans to relocate and opting to remain in the District instead. As a result of these developments several areas, including Long Island, northern New Jersey, Westchester County and mid-Manhattan, have experienced a recent decline in office vacancy rates, although these rates remain at high levels. A major exception was downtown Manhattan where firms moving to newer buildings marketed older space and the vacancy rate rose.
Other Business Activity
District unemployment rates rose in June to their highest levels
since the early 1980s and, at 9.2 percent in both New York and New
Jersey, are now the second highest among 11 large states. New York's
rate jumped from 7.9 percent in May while New Jersey's was up from
9.0 percent in May. While these seasonally adjusted state
unemployment rates often show monthly volatility, their current high
level and the continuing decline in nonfarm employment suggest to
some analysts that the recession in the District has not yet run its
course. Moreover, the outlook is dimmed by recent announcements of
additional employment cutbacks ahead. In upstate New York, for
example, Smith Corona will be moving to Mexico within the next year,
eliminating almost 700 jobs, and a footwear producer will be moving
to Arkansas by the end of August eliminating another 145 jobs. On a
more positive note, a pharmaceutical company employing 650 which had
planned to relocate has instead decided to remain in the District
and two manufacturing companies have just signed contracts with
federal government agencies and could expand employment. In
addition, the construction industry will receive a boost from a new
$235 million mixed-use tower for which land is being cleared in
Manhattan's Lincoln Center area. Much of the building, which will
cover an entire square block and have 38 floors of apartments,
together with 8 floors of office and retail space, has already been
sold or preleased. Reports from purchasing managers in June showed
some improvement in general business conditions in Rochester and
stability in Buffalo.
Financial Developments
Nearly all loan officers surveyed at small and midsized banks in the
Second District indicated that their willingness to lend remained
steady relative to two months ago, but the demand for loans was
lackluster. Both consumer and residential mortgage demand were
mediocre. The few respondents mentioning an increase in the demand
for residential mortgages attributed it primarily to refinancing
activity. However, the demand for business loans was reported as
steady to somewhat higher.
Most respondents reported no change in delinquency rates during the past two months. Virtually all officers reported lowering their deposit rates but noted there was no outflow of deposits. Rather, deposits generally shifted from maturing certificates of deposit into more liquid savings accounts, as customers avoided being locked into low long-term rates.