Beige Book Report: New York
November 1, 1995
Reports on District economic conditions were mixed in recent weeks. The market for commercial real estate in Manhattan weakened in September and retail sales slowed sharply during the first two weeks of October. In more positive news, unemployment rates declined in both New York and New Jersey in September, while purchasing managers across much of the District reported that manufacturing production had increased. Finally, the demand for nearly all types of loans at small and medium sized banks is higher than it was two months ago.
Consumer Spending
District retail sales rose moderately in September. Sales were
generally on or slightly below plan, with sales gains ranging from
zero to five percent on a year-over-year basis. Several contacts
suggested that September results were somewhat weaker than they
appeared at first glance, because of a change in buying patterns;
this year, consumers generally postponed purchases of back-to-school
apparel until September.
Retail sales weakened considerably during the first two weeks of October. Nearly all of the contacts reported that sales were below plan, and several noted that they had curtailed orders to prevent inventories from building. Some of the contacts attributed the weakness to unseasonably warm weather which caused apparel sales to slow. But others noted that sales of such big ticket items as furniture and home electronics -- which are not weather-related -- also softened.
District retailers report that price pressures remained constant or eased during September and October. Several contacts expressed concern that continued weak sales could lead to competitive markdowns early in the Christmas selling season.
Construction and Real Estate
The market for commercial real estate in midtown Manhattan was flat
in September, while the downtown market continued to weaken. Midtown
vacancy rates remained unchanged at 13.7 percent, as a pickup in
leasing activity was offset by space returned to the market.
Although leasing activity in downtown Manhattan remained steady; a
sharp rise in space returned to the market caused downtown vacancy
rates to jump 0.5 percentage points to 25.6 percent. The downtown
market's weakness has caused average asking rents to decline to an
average of $26.12 per square foot -- the lowest level quoted since
the downturn began in 1989. In more positive news, the State
Legislature passed the downtown revitalization plan, which is widely
expected to give the real estate market in lower Manhattan a much-needed boost.
In contrast to the weakness in much of Manhattan's commercial real estate market, the market for residential real estate in Manhattan strengthened during the third quarter. More co-ops and condos were sold and the average sale price per room increased -- particularly for large units in prime buildings.
Other Business Activity
Based on the household survey, unemployment rates in both New York
and New Jersey declined in September. New York's rate decreased 0.3
percentage points to 6.8 percent, while New Jersey's rate declined a
steeper 0.9 percentage points to 5.7 percent. Although employment
increased at a moderate pace in both states, New Jersey also
experienced a sharp decrease In its civilian labor force.
Purchasing managers in the Buffalo, Rochester, and New York City metropolitan areas report that manufacturing production increased robustly during September; in the New York City area, the pace of overall business conditions strengthened for the third consecutive month. Commodity price pressures moderated in both the Rochester and New York City regions, while remaining constant in Buffalo.
Financial Developments
According to the senior loan officers surveyed at small and medium
sized banks in the District, demand for nearly all types of loans is
slightly higher compared with two months ago, The largest increases
in activity occurred in the consumer loan and nonresidential
mortgage segments. Demand for the former is higher at over 25% of
the banks, and steady at almost 50%; demand for the latter Is higher
at about 20% and steady at about 70%. The residential mortgage
segment is the only loan category that did not strengthen. It is now
the weakest segment, with demand lower at about 40% of the banks and
steady at another 40%.
Average loan rates are for the most part unchanged or lower. The spread between the average lending and deposit rates is narrowing, mainly due to lower loan rates. Over 40% of the participants report smaller spreads, and about half report steady spreads. The number of loan delinquencies has decreased over the past two months, especially for nonresidential mortgages. Credit standards have remained essentially unchanged, with all respondents just as willing or more willing to lend.