Beige Book Report: New York
May 4, 1994
Reports on District economic developments were by and large more favorable in recent weeks, suggesting that the pace of economic activity has been picking up in recent months. Most retail contacts posted February and March sales results that were above expectations, homebuilders in several areas noted an increase in traffic and contracts, and office vacancy rates declined. District payroll employment continued to show over-the-year gains. Most loan officers at small and midsized banks indicated no change in their willingness to lend from two months earlier.
Consumer Spending
Most District retail contacts reported that March sales results (on
a year-over-year basis) were well above plan, following February
sales that a majority said were also greater than expected. The
strong March gains occurred even after allowance was made for this
year's earlier Easter and a severe storm in March, 1993 which
reduced sales activity in much of the area. Widespread demand for
most types of merchandise was reported with both big ticket items
and nondurable goods selling well in recent weeks. Several retailers
mentioned being particularly pleased by a resurgence of demand for
women's apparel after several months of sluggish performance.
Over-the-year sales changes ranged from -3 percent to +13 percent in February and from +3 percent to +17 percent in March, with the majority of contacts reporting double-digit gains in March. While better-than-expected sales reduced inventories more than was intended at some stores, the majority of respondents still found stocks to be at sufficiently comfortable levels to avoid any difficulties in meeting demand. In general, retailers were cautiously optimistic about what lies ahead.
Residential Construction and Real Estate
Homebuilders in much of the District have noted an increase in
traffic and contracts written in recent weeks, after a long and cold
winter during which little or no building activity could take place.
The situation in several places was described as spotty, however,
with some builders doing well, but others less well. Response to
spring exhibitions of new homes was generally reported as good and
exhibitors are hopeful that this will result in additional contracts
being signed in the near future. Thus far, the rise in mortgage
rates has apparently not had a negative effect. Some respondents
said that, if anything, it is motivating people to act now before
rates go any higher. Most contacts anticipate a slightly better year
than in 1993, but also stated that this will depend in part on the
future course of mortgage rates.
After several years of little or no new construction activity in Manhattan, three large, mixed-use towers are going up in the Lincoln Center area that will contain substantial amounts of new retail and entertainment space together with rental and condominium apartments. Plans have also been announced to gut a nearby 44-story office building overlooking Central Park in order to reconstruct it with several hundred condominium apartments and possibly some offices as well.
Office leasing activity was fairly brisk in much of the District recently, and primary vacancy rates declined in all of the areas for which data are available except Downtown Manhattan. Lower vacancy rates were posted in northern New Jersey, Westchester County, Fairfield County, Connecticut and on Long Island, which registered a large, two percentage point decline in the first quarter. In addition to the lower vacancy rates, rents have begun to stabilize and smaller concessions are now reportedly being offered to potential commercial space renters.
Other Business Activity
New York reported an over-the-year increase in payroll employment of
87,000 in March, its sixth consecutive over-the-year gain, and New
Jersey posted an over-the-year rise of 32,000 in February, its
seventh consecutive gain. Unemployment rates increased in both
states during March. New York's rate rose to 8.1 percent from 7.8
percent in February, while New Jersey's rose to 7.9 percent from 7.3
percent in February.
For the first time in several months, only a few large-scale employment cutbacks have been announced recently. Natwest will shift 1300 jobs out of the District beginning in August; U.S. Surgical, which is headquartered here, will eliminate 900 jobs, and Fleet Financial Group plans to layoff 600 in New York State. The impact on Long Island of Northrup's recent purchase of Grumman remains to be seen.
The March survey of purchasing managers in Buffalo showed an increase in the percentage of firms reporting improved orders, but a decrease in the percentage with greater production. The February survey of purchasing managers in Rochester recorded a rise in the percentage anticipating improved conditions during the next three months.
Financial Developments
Most senior loan officers surveyed at small and midsized banks in
the District indicated that they remain as willing to lend as they
were two months ago. Several officers, however, did mention an
increased willingness to lend, and a few reported easing credit
standards. Loan demand was mixed, particularly for consumer loans
and commercial and industrial loans. On balance, residential
mortgage demand continued to decline due to the sharp drop in
refinancing activity, but a few officers did report an increased
demand for new home mortgages. The only loan category exhibiting
significant improvement in demand was nonresidential mortgages.
Lending rates were generally higher for all types of loans, although a few officers mentioned lowering rates on business loans "to meet competition for quality loans." While only a third of the respondents had raised rates on deposits, the majority of those who reported rates unchanged intend to increase them in the near future. Finally, almost all respondents reported either stable or lower delinquency rates during the preceding two months.