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Beige Book Report: New York

March 10, 1993

Economic developments in the Second District were mixed in recent weeks but seemed slightly more positive on balance. Most District retail contacts reported better-than-expected sales results in January and positive over-the-year changes. District homebuilders appear to have become more widely optimistic in recent weeks with respondents noting an increase in buyer traffic and a reduction in the volume of homes for resale. Office leasing activity slowed in recent weeks and changes in vacancy rates were mixed. New Jersey's unemployment rate fell sharply in January while New York's was unchanged. Our manufacturing contacts suggest a moderate increase in activity over the period immediately ahead with eight of the twenty-five firms expecting unit sales to grow by 5 percent or more over the next six months. The latest survey of small and midsized banks in the District showed a sharp increase in their willingness to make certain types of loans.

Consumer Spending
Most District retail contacts reported better-than-expected sales results in January and positive over-the-year changes. In addition, with smaller post-Christmas inventories than in recent years, fewer and smaller markdowns were required during the January clearance period. Retailers remain cautiously optimistic about the outlook, however, noting that consumer reception to the new spring merchandise will be the test of what lies immediately ahead.

The majority of stores had year-to-year gains in January ranging from 1 to 6.5 percent. However, one chain reported a small decline. Categories of merchandise cited as posting strong increases were TVs and VCRs. furniture, linens, and various kinds of apparel. Inventories are generally at satisfactory levels though a little below plan in some areas.

<>>Residential Construction and Real Estate
A somewhat more pervasive optimism has developed among District homebuilders recently as respondents noted an increase in buyer traffic and a reduction in the number of houses for resale. The improvement was attributed to the decline in mortgage rates and stronger demand. Builders said that two factors could prove problematic, however: a continuing lack of credit for acquisition and development loans and a recent skyrocketing of lumber prices.

Office leasing activity slowed in recent weeks and vacancy rates in areas such as downtown Manhattan, Westchester and Long Island moved somewhat higher. Rates edged lower in midtown Manhattan and Northern New Jersey, however, and stabilized in Fairfield County as little additional commercial space was brought to market.

Other Business Activity
New Jersey's January unemployment rate fell to 7.4 percent from 8.0 percent in December while New York's rate was unchanged at 8.5 percent. New York has exhausted its unemployment insurance funds for the first time since 1977, one of only five states confronting this problem. Several recent announcements will impact negatively on District employment. I.B.M. now plans to eliminate some 6000 positions at its New York mainframe and technology product plants, almost twice the initial estimate, and Kodak will lay off another 2000 workers, mostly in its headquarters city of Rochester. On a smaller scale, May Department Stores will move its merchandising office to St. Louis, eliminating 430 jobs in New York City by June.

Discussions were recently held with 25 manufacturing firms in the District regarding sales, prices, wages, investment plans and exports. On the whole, our contacts point to a moderate increase in sales over the next six months. Eight firms project sales to rise at least by 5 percent while all but three expect either flat or moderately higher sales. Most of the firms feel they cannot successfully raise prices by any significant amount in the current environment. More than half the firms are cutting back on capital spending in 1993 and there appears to be continued pressure to moderate wage increases and reduce employment. Two-thirds of the firms expect exports to grow at the same rate or somewhat faster than last year.

Employment in the District will probably be boosted by the construction of a new 776-bed building by New York Hospital and a new $250 million Westchester shopping mall for which construction financing was recently arranged. The mall is, reportedly, largely pre-leased to several well-known retail chains. Upstate, the Syracuse area will soon have a new plastics container plant, initially employing 200 workers, and the area will see the expansion of an automotive plant which will create almost 200 more jobs. Finally, the District's entertainment industry has received some good news: the David Letterman show will remain in New York City and, after a period of reduced activity, some film companies are reportedly again producing movies in the City.

Financial Developments
The latest survey of small and midsized banks in the Second District showed a sharp increase in banks' willingness to make certain types of loans. The percentage of banks more willing to make nonresidential, and commercial and industrial loans was the highest since a year ago, while the percentage of banks more willing to make consumer loans was comparable to June 1992. The percentage of banks more willing to make residential loans showed little change from previous months.

Responses concerning loan demand were mixed. A majority of officers reported that loan demand from small businesses was unchanged or higher than one year ago. Respondents noted, however, that consumer loan demand weakened over the past two months, and that refinancing remained sort after heavy activity during October and November.

Nearly all loan officers reported no change in their credit standards during the preceding two months, and delinquency rates for all types of loans were unchanged or lower.