Beige Book Report: New York
August 3, 1994
Regional growth slackened a bit over the past six weeks as the housing sector responded to higher interest rates. Home builders reported lackluster sales, and the sales rate of existing homes fell in many areas. In addition, the rate of absorption slowed in the commercial office markets. Payroll employment expanded, but only moderately, as corporate mergers and restructurings partly offset some of the gains. Unemployment rates bounced up in June following a very sharp decline in May. Although seasonal adjustment problems may have affected the data, the general downward trend probably remains intact. Retail sales were mixed. Inexpensive chains and discounters reported moderate to strong year-over-year gains. and motor vehicle sales were moderately strong, but general department stores reported small increases that were well below their expectations.
Consumer Spending
Retailers reported mixed sales results in June and the first two
weeks of July. General department stores chalked up disappointing
12-month gains of 0.5 to 5 percent. However, inexpensive department
stores, discounters, and variety stores reported gains in the range
of 7 to 10 percent in the Second District, better than their results
in the rest of the nation. Managers at these stores commented that
sales were good across the spectrum of men's, women's, and
children's apparel, small and large appliances, and electric goods.
The general department stores noted increased difficulty moving
apparel, some unwanted inventory accumulation, and the consequent
need for markdowns and sales.
Motor vehicle dealers reported strong demand -- unit sales ran about 5 percent above year ago levels -- in June and early July. Dealers reported that the effects of higher interest rates were blunted by double-digit gains in leasing. Inventories of cars were slightly higher than desired, but supplies of light trucks were reportedly quite short.
In New York City, tourism has picked up, driven by special events and foreign tourists attracted by favorable exchange rates, although the critical convention business remains weak. Hotels report climbing occupancy rates, well above year ago levels, and attractions such as the Metropolitan Museum of Art and the Empire State Building boast of long waiting lines and strong growth in admissions.
Labor Markets
Unemployment rates rose slightly in June to 7.0 percent in New York
State and 7.1 percent in New Jersey following unsustainably large
declines in May. In recent weeks, mergers, acquisitions and
restructurings were announced for two retail chains which number
among the nation's largest, two of the metropolitan area's largest
thrifts, several smaller retail chains and thrifts, and a major
pharmaceutical manufacturer. While the staff reductions following
these changes have yet to be fully implemented, corporate changes
earlier this year restrained the district's payroll employment
growth to a 1.4 percent annual gain during the January - May period,
and the future appears to hold similar constraints.
Residential Construction and Real Estate
Although there are isolated spots of strength, in general builders
noted that momentum in new home sales dropped in June and early
July. Prospective buyer traffic is definitely down and builders
expect demand to be flat at best through the end of the year.
Rising interest rates are blamed for the softening of demand, but builders feel besieged on the supply side as well. Complaints about rising lumber prices have broadened to include price increases for a wide array of building materials. However, builders also noted that in most cases these were the first price increases in several years. Acquisition and development loans also remain difficult to obtain.
Leasing activity slowed and office vacancy rates eked out only minor improvements in June. Earlier this year, the pace of absorption had been somewhat faster. In midtown Manhattan, the vacancy rate for prime commercial office space now hovers around 13.9 percent--well below the rate for most of the nation's central business districts. Vacancy rates for prime office space in most suburban areas in the Second District, including Long Island and Fairfield County, also show marked improvement compared to both year-ago levels and the prior quarter. Corporate restructuring and some deceleration in the volume of relocations have stymied improvements in the Westchester and Northern New Jersey office markets; however, vacancy rates in these suburbs rose slightly from March to June.
Financial Developments
About one-third of the senior loan officers surveyed at small and
midsized banks in the District reported stronger loan demand, while
fewer than 20 percent reported weaker demand. Consumer loans showed
the most strength with more than half of the respondents reporting
increased demand. Residential mortgage and refinancing activities
remained weak. In general, loan rates have continued to increase.
Nearly three-quarters of the banks reported higher rates, though a
few reported lower business loan rates. Fewer banks raised their
rates on consumer loans than on any other type of loans, as was the
case in the last survey.
While three-quarters of banks surveyed reported no change in their willingness to lend, one-quarter did report an increase. In general, credit standards have not changed, and more than 90 percent of the banks surveyed reported stable or lower delinquency rates.
Approximately two-thirds of the respondents reported that deposit rates moved higher, and that the spread between the average lending rate and deposit rate was stable or narrowed.