March 13, 1996
Reports on Second District economic conditions were mixed, but on balance were more positive than In recent months. Beginning with the more upbeat developments, retail sales strengthened considerably in February. Moreover, robust leasing activity led to improvement in Manhattan's commercial real estate market. Finally, aggregate loan demand has strengthened over the past two months. In contrast, reports on homebuilding and manufacturing activity were mixed. The market for new homes In the New York City-Northern New Jersey area improved, while the upstate market did not. Conversely, manufacturing output Increased in the Buffalo region but declined In the New York City area during February.
Consumer Spending
District retail sales strengthened In February, following
disappointing January results. Year-over-year comparable-store sales
gains ranged from +2 to +10 percent and averaged roughly 6 percent
in February, nearly twice January's average result. Nearly all
contacts report that February sales were on plan and inventories
were generally at desired levels. A broad range of products --
including better apparel, home furnishings, and commodity
consumables -- sold well. Several retail contacts noted that
competitive price-cutting was widespread during January; in
contrast, February saw a return to more "normal" pricing patterns.
Construction & Real Estate
Manhattan's commercial real estate market improved in January.
Although leasing activity in Midtown Manhattan rose to a five month
high, the vacancy rate was virtually unchanged at 14.1 percent. In
Downtown Manhattan, leasing activity was fairly brisk for the third
month in a row, pushing the vacancy rate down to 24.9 percent in
January, from 25.1 percent in December and 25.4 percent in November.
The market for new homes has picked up in the New York City and Northern New Jersey areas, but upstate New York's depressed market showed no improvement. Homebuilders in the New York City area, which includes Long Island and the lower Hudson Valley, report that sales are higher than a year ago; one contact described the market as "perky". Similarly, contacts in Northern New Jersey report some pickup in both traffic and buying activity in the past six weeks, but this is compared to an exceptionally weak market in late 1995. Also, some expressed concern that the pickup In activity may just be a temporary spike, with the recent uptick in mortgage rates motivating potential buyers with a sense of urgency.
Homebuilders in upstate New York report no recent improvement; they say demand for new homes continues to be depressed by corporate and government down-sizing and pervasive consumer pessimism. Moreover, high inventories of unsold existing homes -- partly due to corporations unloading homes of relocated employees onto the market -- are pushing down prices and competing with the new-home market. Only the low-end of the market, particularly subsidized units, is performing reasonably well. Contacts in both New York and New Jersey believe that the market is too weak to support any increase in selling prices.
Manufacturing
Buffalo area purchasing managers report steady growth in
manufacturing output in January and February. In contrast,
purchasers in the New York City area report a fairly sharp downturn
In local manufacturing activity in February (and a more modest
decline in activity outside the manufacturing sector). Both surveys
show commodity price pressures easing in February, continuing recent
trends.
Nearly two-thirds of District manufacturers polled in a recent Federal Reserve Bank of New York survey expect unit sales to increase over the next six months, with exports expected to grow more rapidly than domestic sales. Ninety percent of the respondents anticipate that prices will either remain unchanged or decline; however, one-quarter reported that they had raised prices recently. Wages are expected to rise 3 to 4 percent and capital spending will be similar to that of 1995.
Other Business Activity
Unemployment rates in the district were essentially unchanged in
January. New York State's rate held steady at 6.2 percent, while New
Jersey's rate edged down to 6.5 percent. Both states reported sharp
drops in payroll employment in January, but these were attributed to
temporary factors: a blizzard that hit during the survey week and a
building workers' strike in New York City.
Consumer confidence for the Middle Atlantic region (New York, New Jersey, and Pennsylvania) rebounded in February, after falling to its lowest level in more than 2 years. Still, residents remain exceptionally pessimistic about job prospects. More large corporations have announced workforce reductions in New York State: TRW, General Electric, Nationwide, Bausch and Lomb, Pratt and Lambert, Deluxe Corporation, Reader's Digest and UPS announced layoffs totaling nearly 2,000 workers.
Financial Developments
Demand for nearly all types of loans strengthened over the past two
months, according to a survey of senior loan officers at small and
medium-sized banks. In general, loan demand was stronger at more
than 25 percent of the banks surveyed and steady at over 55 percent.
The largest increase in activity occurred in the consumer loan
segment, with demand higher at nearly 45 percent of the banks and
steady at close to 40 percent. Refinancing activity for all types of
loans increased, and is now higher at approximately 40 percent of
the banks.
Average loan rates were steady or lower at nearly all of the reporting banks, resulting in a narrower spread between lending and deposit rates at almost 65 percent of the banks. Loan delinquencies were higher at 20 percent of the banks and steady at 70 percent, with the nonresidential mortgage segment experiencing the largest increase in delinquencies. Although several of the survey participants tightened credit standards, nearly 60 percent of the banks were just as or more willing to lend than they were two months ago.