May 10, 1995
Reports on District economic conditions were generally mixed in recent weeks. A number of District retailers reported that March sales were below planned levels, although preliminary reports for April suggest that sales have strengthened. While the market for office space in midtown Manhattan remained strong, office vacancy rates in the downtown and New York City suburban areas generally rose during the first quarter. Finally, although aggregate loan demand increased at small and midsized banks over the past two months, survey respondents attributed the rise to seasonal factors.
Consumer Spending Retailers expected sales this March to be weak relative to last March because, unlike 1994, this year the Easter holidays fell in April. Despite only modest expectations, fully half of District retail contacts reported that March sales were below plan while only one contact reported above-plan results. Weaker-than-expected sales led several contacts to note that inventories had increased above planned levels.
Year-over-year sales results ranged from losses of 5 percent to gains of roughly 6 percent in March. In general, apparel and home products sold well. One contact noted that sales of auto supplies, particularly batteries and tires, had declined because the weather was considerably milder than in March of last year.
Preliminary reports from several District retailers suggest that sales rebounded in April and that combined March and April sales growth may well be back on plan.
Construction and Real Estate
Although the market for office space in midtown Manhattan remained
robust during the first quarter, the downtown and suburban markets
generally weakened. Strong office leasing activity in midtown
decreased available space and caused vacancy rates to decline. For
the first time since the eighties, large blocks of contiguous
midtown office space are in short supply. In contrast, a rise in
downtown leasing activity was more than offset by return of space to
the market as the financial sector downsized. As a result, both
vacancy rates and available space downtown increased. Office vacancy
rates also rose in Nassau, Suffolk, Westchester, and Fairfield (CT)
counties.
Residential construction across much of New York State and northern New Jersey remained slow over the past two months; the usual spring pick-up in traffic and sales has not yet occurred. Several builders expressed concern that rising inventories and aggressive price- cutting in the market for existing homes would continue to dampen the sale of new homes. Homebuilding in the Albany area, which showed strength early in the year, has been slowed by uncertainty over proposals to reduce the size of the State workforce and relocate State workers.
Other Business Activity
The unemployment rate in New York State increased 0.5 percentage
points in March to 6.6 percent, while the rate in New Jersey
declined 0.3 percentage points to 5.8 percent. Unlike earlier in the
year, there were few announcements of corporate downsizings. The
only announcement of large-scale job cuts came from General
Electric, which announced that it will cut its Schenectady workforce
by nearly 1,000 over the next six months. On a more positive note,
Wal-Mart announced plans to build a merchandise return facility in
the Albany area that could eventually employ 400 people.
Financial Developments
Compared to two months ago, aggregate loan demand is higher at about
half of small and midsized banks surveyed in the District and steady
at over one-third. Many of the senior loan officers surveyed
attribute this increase to seasonal factors. The commercial and
industrial loan segment remains robust, with about forty percent of
the banks reporting higher demand and nearly half reporting steady
demand. The residential mortgage segment is strengthening, with
demand higher at about one-third of the banks and lower at only one-
fifth. Refinancing activity is still weak at almost all of the
participating banks.
About sixty percent of the senior loan officers surveyed are just as willing to lend as they were two months ago, while about one-third are more willing. Nearly all banks have maintained their credit standards, and have stable or lower delinquency rates. Average loan rates are steady or lower at more than three-quarters of the banks. In particular, about half of those surveyed report lower rates on residential mortgages. The spread between the average lending and deposit rates has narrowed at more than half of the banks, primarily reflecting recent increases in rates paid on deposits.