Beige Book Report: New York
September 14, 1994
Reports on District economic developments were by and large more favorable in recent weeks. Most retail contacts posted July sales results that were on or above plan and homebuilders noted a pickup in activity after some earlier slowing. Office leasing activity showed some recent improvement and unemployment rates declined in the District during August. Senior loan officers surveyed at small and midsized banks reported strength in business loan demand but weakness in the mortgage and consumer sectors.
Consumer Spending
Year-over-year sales results were generally positive among District
retailers in July and partial data indicate that the pattern
continued into August. A majority of respondents reported that sales
were on or above plan with gains ranging between 0.5 percent and 6.0
percent. The one chain with a small year-to-year decline in sales
attributed this in large part to having much less clearance
merchandise on hand this July compared with last year. Items
mentioned as strong sellers were men's wear, junior apparel, women's
jewelry and accessories and merchandise for the home such as
appliances and electronics. Several retailers noted some softness in
sales of women's apparel but expressed hope about the new fall
fashions.
With the exception of one chain which has been attempting to pare inventories for the past several months, retailers described inventories as both current and on plan.
Residential Construction and Real Estate
Homebuilders in the District noted a pickup in activity during
recent weeks after slowing earlier this summer. Most stated that
higher interest rates have not been a major deterrent thus far both
because rates remain historically low and are spurring buyers to act
before rates go even higher. Some noted that higher new home prices
resulting from increased costs for materials such as lumber, gypsum
and drywall, could have a more pronounced effect on the market than
higher interest rates. For the most part, respondents expect the
overall volume of housing activity to show little change from last
year.
Office leasing activity has shown some improvement in parts of the metropolitan area. During July the primary office vacancy rate in midtown Manhattan fell by half a percentage point and in the second quarter, Westchester County posted its largest decrease in available office space since the end of 1991. On Long Island, a 20-year lease was recently signed for two of the Grumman Corporation buildings being vacated--the largest commercial real estate transaction on the island thus far this year.
Other Business Activity
Unemployment rates declined in the District during August. New
York's rate moved down to 6.9 percent from 7.1 percent in July while
New Jersey's rate fell to 6.0 percent from 6.4 percent in July. This
was the second consecutive decrease for New Jersey.
Demolition of the unused Eastern Airlines terminal at Kennedy Airport began in August in preparation for construction of the first new terminal to be built there in over 20 years. An international consortium will build and operate the terminal which will have 11 gates, each able to accommodate the largest jets in use. The new activity is particularly welcome at Kennedy, which had been severely impacted by the demise or downsizing of some of its major tenants.
Several department store chains have reportedly expressed interest in acquiring some of the stores that will likely be divested in the metropolitan area as a result of the Macy-Federated merger. These acquisitions would mitigate any adverse employment effect of the merger. On the other hand, Mayor Giuliani recently ordered New York City agencies to make additional cuts totaling $250 million and to prepare for the possibility of cutting yet another $200 million in the months ahead. Further employment cutbacks are likely to result. In addition, G.E. announced plans to reduce its manufacturing work force in Schenectady by 1200 over the next several months.
Financial Developments
According to senior loan officers surveyed at small and midsized
banks in the District, overall loan demand has been mixed. The
largest declines in activity occurred in the residential mortgage
and refinancing segments. About three-fifths of the banks
experienced lower levels of residential mortgage demand, and almost
all reported less or no refinancing activity. The demand for
consumer loans was also somewhat weak. Business loans, however,
remained healthy with close to one-half of respondents reporting
higher demand and only one-quarter reporting lower demand. Loan
rates have generally increased with the prime rate; only a few banks
left their rates unchanged.
While nearly three-quarters of the surveyed banks noted no change in their willingness to lend, one-quarter reported an increase. The banks have not altered their credit standards, and more than four- fifths reported stable or lower delinquency rates. Despite the latest increase in the prime rate, the spread between the average lending and deposit rate has generally held steady, with fewer than two-fifths of the banks reporting a wider spread.