December 9, 1992
Economic developments in the Second District remained mixed in recent weeks, but seemed slightly more positive, on balance, than in the last report. October sales at most District department stores were reported to be on or above targeted levels though results varied widely. Homebuilders in most of the District noted some recent improvement in the residential construction market, and office leasing activity has been relatively strong in midtown Manhattan. District unemployment rates improved in October but nonfarm employment has continued to decline. Reports from Buffalo purchasing managers showed a worsening in both production and new orders during November following an improvement in October. Loan officers at small and midsized banks indicated no change in their willingness to lend.
Consumer Spending
Sales results varied widely at District department stores during
October but most were reported to be on or above targeted levels.
Due in part to special attractions such as storewide promotionals
and the opening of remodeled floors, the majority of the stores had
over-the-year gains in October, which ranged from 0.5-11.0 percent.
However, one chain reported a year-to-year decline. Categories of
merchandise registering the strongest increases were most types of
women's apparel, cosmetics and men's sportswear. Two respondents
noted a pickup in furniture sales as well.
Inventories are generally at satisfactory levels and, indeed, a little below plan in some areas where sales were stronger than anticipated. With regard to the holiday season, most contacts anticipate somewhat larger year-to-year gains than occurred last year "but nothing spectacular".
Residential Construction and Real Estate
Homebuilders in most of the District reported some recent
improvement in the residential construction market. Several contacts
spoke of increased traffic and an upturn in sales, spurred in part
by the low level of interest rates and the desire to buy before
mortgage rates rise. Buyers remain cautious, however, in the wake of
continued layoffs and uncertainty about the economic outlook. Starts
are expected to top last year's low level in most areas though the
extent varies from "by quite a bit" in some upstate New York
communities to "not by a lot" in downstate New York and New Jersey.
Obtaining loans for acquisition and construction is still reportedly
difficult in much of the District and one respondent stated that the
problem is worsening rather than improving in his area.
In recent weeks, office leasing activity has been relatively strong in midtown Manhattan where for the first nine months of this year the footage leased was some 23 percent above the year-earlier level. In downtown Manhattan, however, the pace of leasing has been slower and for the first nine months totaled little more than in 1991. As a result, while the primary vacancy rate in midtown Manhattan has been declining, the downtown vacancy rate has risen and by October, according to one source, a two percentage point difference existed between the two rates.
Other Business Activity
District unemployment rates improved somewhat in October as New
Jersey's rate fell to 8.1 percent from 9.0 percent in September and
New York's to 8.7 percent, also from 9.0 percent. However, nonfarm
employment has continued to decline in both states though the pace
of loss may have moderated. Regarding the outlook, the employment
impact of Martin Marietta's intended purchase of G.E. Aerospace,
which has offices and operations in several District locations,
remains uncertain. Furthermore, Grumman plans to cut 500 more jobs
on Long Island by the end of March, related to the closing of its
aircraft factory, and in upstate New York, Miller Brewing will cut
180 jobs early next year. On the positive side, an automotive
transmission plant in the Syracuse area just hired new production
workers for the first time since 1986 and might add more in response
to increased product demand.
Two other developments which could have a positive impact on the District are noteworthy. Farmers in the West reportedly are now receiving shipments of some of New York City's treated sludge to fertilize crops, restore depleted croplands and curb erosion, which helps lessen the City's sizable waste-disposal problem. In addition, two new, employee-owned airlines have recently begun offering low- cost, unrestricted flights from Newark to various Florida destinations, adding to the growth of this rapidly developing airport.
Reports from Buffalo purchasing managers showed a worsening in both production and new orders during November following a substantial improvement in October. More generally, our District manufacturing contacts indicated continuing weak economic activity.
Financial Developments
Nearly all senior loan officers surveyed at small and midsized banks
in the Second District indicated that they are as willing to lend as
they were two months ago. Although residential mortgage demand
continued strong during the last two months, consumer loan demand
weakened and demand for nonresidential mortgages remained soft. A
slight improvement in commercial and industrial loan demand was
partly attributed to seasonal factors. In light of continued
weakness in overall loan demand, several officers reported an
increase in the use of advertising campaigns.
All respondents reported either maintaining or lowering loan rates. A majority of officers indicated that delinquency rates for mortgages and consumer loans were unchanged or lower during the preceding two months.