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Beige Book Report: New York

January 21, 1993

On balance economic developments seemed slightly more positive in recent weeks, although some negative reports continued to be received. Most District retailers had sales results that were either on or better than plan in November and December. Solid gains were posted for apparel of all types, and year-end inventories were described as generally in good shape. Unemployment rates in New York and New Jersey continued their seesaw pattern but are somewhat lower than their October levels. Office leasing activity proceeded at a fairly good pace in midtown Manhattan but remained sluggish in downtown Manhattan. Meanwhile, downtown Buffalo recorded the first decline in its office vacancy rate in four years, and a larger percentage of Buffalo purchasing managers reported higher new orders and/or production. Homebuilding activity was relatively slow, but new home sales were generally above year-earlier levels. Most senior loan officers at small and midsized banks indicated no change in their willingness to lend.

Consumer Spending
Most District retail contacts reported sales results that were in line with or better than projections in November and December. A severe storm closed District stores for one or two days in mid- December due to hurricane-force winds, widespread flooding and heavy snows, but apparently sales were recouped, at least in part, during the remainder of the month. While the sales environment has remained highly competitive, retailers stated that they engaged in less promotional activity and price-cutting than during the 1991 holiday season with somewhat higher profit margins as a result. Most contacts noted more enthusiasm and a less conservative attitude on the part of consumers, but our contacts were reluctant to assert that a turning point has been reached. Over-the-year sales changes ranged from -9 percent to +8.5 percent in November and from flat to +12.5 percent in December. The Retail Council of New York State's annual survey of about 200 stores found sales gains averaging 6 to 8 percent above the 1991 level for the post-Thanksgiving through post- Christmas period.

A wide variety of merchandise sold well during November and December though reportedly the best sellers were practical items such as cold weather gear (especially after the December storm), furniture, rugs, and accessories. Children's books, video games and remote control toys were also popular.

Residential Construction and Real Estate
Homebuilding activity has been relatively slow in most of the District due both to the season and to the unwillingness of potential buyers in some areas to commit themselves given their continuing uncertainty about jobs and the economy. For 1992 as a whole, new home sales were generally above the sluggish, year- earlier levels with the gains varying widely within the District. Most builders anticipate some further improvement in 1993. Renewed sales activity was reported at previously stalled projects in Westchester County and central New Jersey. Developers intend to expand these projects if buyer interest continues. Restoration and rebuilding of homes that were damaged or destroyed in a severe December storm will provide a further impetus to building activity, especially in flood-ravaged coastal areas.

Office leasing activity continued at a fairly good pace in midtown Manhattan, but has remained sluggish downtown. Vacancy rates moved up in both parts of Manhattan. Net absorption of space remained negative as a result of the completion of a new office building in midtown and the continuing additions of existing space in the downtown market due to corporate restructurings. An annual survey of office space in downtown Buffalo found an almost three percentage point decline in the vacancy rate between year-end 1991 and 1992. Although the rate remains high, this was the first decrease in four years.

Other Business Activity
District unemployment rates continued their seesaw pattern since the last report, but on balance declined somewhat. In December, New Jersey's unemployment rate was 8.0 percent, down from 8.7 percent in November, but New York's was 8.4 percent, up from 8.0 percent one month earlier. However, both rates are somewhat below their October levels. Although District payroll employment has not shown any real improvement, personal income tax receipts in New Jersey and payroll income data in New York show good to moderately strong growth, suggesting that the District's economy may be somewhat stronger than indicated by the employment statistics.

The survey of Buffalo purchasing managers showed an increase in the percentage of firms with improved new orders and/or production during December. Fifty-nine percent of the surveyed managers expect an improvement in general business conditions during the new year, compared to only 18 percent a year earlier.

Two recently announced corporate restructurings will affect District employment. In the initial implementation of its plan to cut employment by 25,000 in 1993, IBM said 3000-3500 jobs will be eliminated at three of its Hudson Valley plants at the end of March. While voluntary incentive packages will be offered, layoffs may occur as well On the other hand, a Long Island firm plans to close an out-of-District plant and consolidate its operations on the Island, adding 300 workers this year and several hundred more in the future.

Financial Developments
Most senior loan officers surveyed at small and midsized banks in the Second District indicated that their willingness to lend has not changed over the last two months. The majority of respondents indicated that overall loan demand remained slow. The demand for residential mortgages weakened as refinancing activity softened. However, the demand for commercial and industrial loans improved slightly. Almost all respondents reported that their loan rates had not changed during the preceding two months. Delinquency rues for all types of loans were unchanged to slightly lower.

With regard to recent media reports and editorials urging an easing in the "regulatory burden" on banks in order to simulate lending, almost all loan officers indicated that capital requirements were not constraining their lending. However, several lenders at small and midsized banks suggested that reductions in the number of regulations and in the amount of time spent complying with them would permit them to initiate more loans.