December 7, 1994
Reports on District developments were mixed in recent weeks but on balance pointed to slower growth. A number of retailers reported lower-than-expected sales in October, though several reported a strong post-Thanksgiving weekend. Homebuilders noted a seasonal slowdown in activity and expressed concern about future weakness. The unemployment rate was up slightly in October in New York, with New Jersey unchanged. On the bright side, surveys of area businesses show considerable optimism about conditions, and office leasing activity improved. Senior loan officers surveyed at small and midsized banks reported stable or lower loan demand.
Consumer Spending
Year-over-year sales results varied at District retail stores during
October, with a majority of contacts reporting that sales were below
plan but one reporting exceptional strength. Part of the weakness
was attributed to unseasonably warm weather which affected purchases
of outerwear. In general, retailers are optimistic about holiday
sales, especially of computers, electronics, and goods for the home.
News reports suggest that sales during the post-Thanksgiving weekend
were quite strong.
In addition to the items mentioned above, those said to be selling well include men's clothing and accessories, and jewelry. In general, respondents were comfortable with inventory levels.
Residential Construction and Real Estate
District homebuilders reported little change in the market for new
and existing homes. Housing starts are about the same as or lower
than a year ago. Most contacts believe that rising interest rates
have not yet had a significant impact on activity, though several
expressed concern that they will hurt the market next spring.
Office leasing has shown some improvement. The primary office vacancy rate in midtown Manhattan fell by one percentage point from September to October. Overall leasing activity in midtown is up 18 percent over a year ago. The downtown vacancy rate was unchanged in October.
Other Business Activity
District unemployment rates were mixed in October. New York's rose
0.3 to 6.5 percent, while New Jersey's was unchanged at 6.7 percent.
New Jersey payroll employment rose by a seasonally-adjusted 8000 in
October, and is up 1.6 percent so far this year. New York State
employment was up 1000 in October. District employers continue to
announce downsizings. Hoffman-LaRoche has begun to lay off hundreds
of workers in Northern New Jersey. Allied Signal will eliminate
about 1000 jobs at an engine plant in Stratford, Connecticut. Kodak
has announced a reduction of an additional 800 workers (on top of
previously announced cutbacks) in Rochester by early 1995. Cutbacks
and reduced bonuses on Wall Street are reportedly having a negative
impact on nearby businesses. On a more positive note, Buffalo-
American Axle will be adding 400 jobs in the Buffalo area during the
next 3 years.
The National Association of Purchasing Managers - Buffalo, Inc. reported that the business climate in Western New York was the best in the last four months, with increases in new orders and inventories. 78 percent of respondents reported paying higher prices for materials--the highest figure since February 1979.
Surveys of small and medium-sized businesses in the region find considerable optimism about conditions. According to the New Jersey Business and Industry Association, the outlook for sales, profits, and employment is the best in the last six years. A survey by Chemical Bank covering the New York metropolitan area found that most businesses expect conditions to improve or remain the same during the next year.
Financial Developments
Aggregate loan demand is either steady or lower at more than nine-
tenths of the small and midsized banks surveyed in the District. The
largest declines in activity occurred in the residential mortgage
and refinancing segments. About three-fourths of the banks
experienced less residential mortgage demand, and less or no
refinancing activity. The consumer and commercial and industrial
loan segments are generally weak as well, with only about one-fifth
of the banks reporting higher demand.
Loan rates are higher or the same across all categories of lending. Recent increases in deposit rates have kept the spread between the average lending and deposit rates unchanged at more than half of the banks, while almost one-third reported smaller spreads. More than half of the senior loan officers surveyed maintained their willingness to lend: over one-quarter reported increased willingness. Very few banks changed their credit standards, and almost all have stable or lower delinquency rates.