Beige Book Report: New York
March 15, 1995
On balance, reports on District economic conditions suggest that growth has slowed. Although retail sales were above expectations, much of the gain was attributable to better weather this year than last. Despite the favorable weather, residential construction activity varied widely. Unemployment rates rose in both New York and New Jersey; while announcements of corporate layoffs and military base closings foreshadow future labor market weakness. Eighty percent of senior loan officers at small and midsized banks reported steady or weaker aggregate loan demand.
Consumer Spending
District retail sales rose strongly during February, with sales
gains ranging from +2 to +11 percent on a year-over-year basis.
Although part of the gain was attributed to the unusually harsh
weather which depressed sales last February, most contacts reported
above-plan sales growth. Several retailers noted that sales of
women's apparel were strong after months of disappointing
performance. Menswear, electronics, housewares, and home improvement
products also sold well. Inventories consist of current spring
merchandise and are at planned levels.
Construction and Real Estate
Residential construction activity varied widely among regions within
the District in recent weeks. Despite mild winter weather, weak
demand for housing due to corporate restructurings and base closings
slowed homebuilding across much of Central New York State and
Northern New Jersey. Activity in Rochester and Buffalo is sluggish,
but has generally remained at 1994 levels. In contrast, the Albany
area, the lower Hudson Valley, and Long Island showed somewhat
greater strength.
After a strong fourth-quarter, the market for midtown Manhattan office space softened in January due to an unusually sharp increase in the amount of space returned to the market. In contrast, conditions in the long-struggling downtown office market improved somewhat, as a surge in leasing activity caused vacancy rates to decline and asking rents to firm. Responding to the downtown market's long-term difficulties, Mayor Guiliani recently announced a plan for the revitalization of lower Manhattan, including tax incentives to stimulate leasing and zoning changes to encourage the conversion of vacant office space to residential use.
Other Business Activity
District unemployment rates rose in January, following three
straight months of declines. New York's rate rose 0.3 percentage
points to 6.0 percent, while New Jersey's rate jumped a full
percentage point to 7.2 percent. A number of job cuts -- announced
since mid-January -- provide evidence of continued corporate
downsizing. The roster of firms announcing new cuts included Kodak,
Martin Marietta, and Fisher-Price, each planning to pare from 700 to
800 jobs by year-end. Wall Street continued to downsize, with
announcements by Goldman Sachs, Salomon Brothers, First Boston, and
Donaldson Lufkin & Jenrette.
Military base closings are also affecting District employment. Over the next few months, 650 civilian jobs will be eliminated at Rome's Griffiss Air Force Base, with much heavier civilian and military job losses scheduled for later this spring. The latest round of base closings -- announced February 28th and occurring over the next few years -- are expected to eliminate nearly 3,000 military and civilian jobs within the District, including roughly 1,300 civilian jobs at the Bayonne Military Ocean Terminal and 1,000 civilian jobs at Rome Laboratories.
On a more positive note, Tops Markets announced plans for an Erie County grocery distribution center, expected to create 600 jobs. In the longer run, the Oneida Indian Nation's proposal to establish a casino in Sullivan county (90 miles north of New York City) could boost service employment in the Catskill region.
Purchasing managers in the Buffalo and New York metropolitan areas reported that production in February declined from January levels; in the downstate area, weakness in the non-manufacturing sector outweighed strength in manufacturing. Managers in both regions reported that price pressures eased over the period. Small manufacturers in Western New York report spot shortages of skilled labor.
Financial Developments
Compared to two months ago, aggregate loan demand is steady at about
half of small and midsized banks surveyed in the District and lower
at over one-third. The residential mortgage segment remains the
weakest, with demand lower at about half of the banks. The non-
residential mortgage and commercial and industrial loan segments are
the strongest. Over half of those surveyed report steady demand and
about two-tenths report higher demand in each of these categories.
Refinancing activity is steady or lower at all of the participating
banks.
About seventy percent of the senior loan officers surveyed maintained their willingness to lend over the past two months, while thirty percent have increased their willingness. At nearly all banks, credit standards are unchanged, and about eighty percent have stable or lower delinquency rates. Loan rates are mainly higher or the same across all categories of lending; a few banks report lower rates on residential mortgages. Almost half of the respondents note that recent increases in rates paid on deposits have resulted in a narrowing of the spread between the average lending and deposit rates.