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New York: March 1994

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Beige Book Report: New York

March 9, 1994

The District's economy showed some underlying modest improvement in recent weeks, though unusually harsh weather slowed consumer spending and construction. Office vacancy races declined in several areas and District payroll employment continued to expand. While the majority of loan officers at small and midsized banks indicated no change in their willingness to lend from two months earlier, about a quarter said they were more willing to lend.

Consumer Spending Most District retailers reported disappointing sales results during January, due, in large part, to unusually cold and stormy weather during the last part of the month. Sales snapped back in early February, when the weather moderated, but additional winter storms battered the region at midmonth and were expected to reduce overall February sales results as well.

While most contacts experienced January sales that were below expectations, retailers were fairly evenly divided between those with positive and negative results on a year-over-year basis. The changes ranged from -18 percent to +4 percent. Sales in suburban areas, dependent on cars, tended to be hardest hit by the ice and snowstorms, while in areas with mass transit, sales held up to a greater extent. Practical items such as home furnishings, electronics and outerwear were the best sellers, and several retailers noted that fashion apparel remained relatively weak. Inventories were generally at comfortable levels despite the recent storms.

Residential Construction and Real Estate
Homebuilding activity has been relatively slow throughout the District in the wake of the continuing ice and snow conditions, but builders anticipated a moderate overall increase in starts this year. They cited low mortgage rates, some improvement in consumer confidence, and more realistic home prices as the basis for their outlook. In New York City, two developers have begun construction of the first apartment buildings that take advantage of recent changes in local and federal laws providing added incentives for such undertakings. Construction of other new rental apartment buildings is expected to follow later this year as result both of these new incentives and of a reported improvement in the demand for rental housing in the City.

The combination of virtually no new speculative office building and a moderate amount of leasing activity resulted in lower office vacancy rates in several parts of the District. The largest decline- -about 1 1/2 percentage points over the September to December 1993 period--was on Long Island, while smaller decreases occurred in northern New Jersey and Fairfield County, Connecticut. However, the primary vacancy rate in midtown Manhattan was unchanged in recent weeks, While the rates in downtown Manhattan and Westchester County rose as a result of the continued downsizing and merging of firms.

Other Business Activity
New York reported an over-the-year increase in payroll employment of 55.000 in January, its fourth consecutive over-the-year gain, and New Jersey posted an over-the-year rise of 45,000 in January, its sixth consecutive gain. New York and New Jersey have been generating sufficient job growth in recent months to produce net gains in employment despite the ongoing cutbacks by several large employers. More cutbacks have been announced for the future. Nynex, the major local telephone company, will cut almost 17,000 jobs over the next three years, and A.T.&T. will eliminate as many as 15,000 jobs in its long-distance unit over the next two years. GTE will also eliminate 17,000 positions, although much of its workforce is outside the District. In addition, Mayor Guiliani plans to pare the New York City workforce by 14,000-l8,000. On a smaller scale, Grumman on Long Island, Niagara Mohawk in upstate New York, and G.E. in Schenectady plan reductions of several hundred additional workers each.

As is the case for the national data, January unemployment rates at the state level are not directly comparable with earlier ones because of an extensive redesign of the household survey beginning with January data. However, New York's January rate of 7.1 percent and New Jersey's 6.8 percent represented decreases in unemployment from the old December survey figure to the new January figure even at a time when the new survey design increased the unemployment rate at the national level relative to the old December figure.

The January survey of purchasing managers in Buffalo showed a sharp decline in the percentages of firms reporting improved orders and production, possibly reflecting adverse weather conditions. At the same time, a much higher percentage of respondents reported a rise in commodity prices in January than in December.

Financial Developments
The majority of senior loan officers surveyed at small and midsized banks in the District indicated no change in their willingness to lend when compared with two months ago, while about a quarter of the respondents reported an increased willingness to lend. Overall loan demand appears weaker on balance, with one-third of the officers reporting stronger demand and almost one-half reporting weaker demand. This weakness came mainly from a slowdown in residential mortgages and mortgage refinancing, with roughly two-thirds of respondents noting reduced demand for such loans. The only lending category for which more respondents reported an increase in demand rather than a decrease was the commercial and industrial sector.

When asked about any response thus far to the recent increase in the federal funds rate, most respondents indicated that both their loan and deposit rates have remained the same as two months ago. Regarding expected movements in these rates in the near future, a few respondents foresaw increases, but significantly more expected no change in either loan or deposit rates. Approximately equal numbers of respondents reported higher, lower, and no change in delinquency rates. Some loan officers attributed their higher delinquency rate to seasonal factors such as higher consumer spending during the holiday season.