July 1, 1983
Introduction
The economic recovery continued at a steady pace in most of the
Second District through May and June, but some industries and
regions are not yet experiencing renewed economic growth. The most
dynamic sectors of the District's economy were homebuilding, high
technology industries, some automotive suppliers, and the financial
and service industries. The regions in which these industries
dominate—New York City, Northern New Jersey, Long Island, Syracuse,
and Albany—are performing well. It also appears that the patrons of
upscale retail establishments are spending much more than they were
last year.
In the regions that specialize in the manufacturing of steel and producers' durables recovery has yet to begin, and some observers of these areas are not even sure that the recession has bottomed out. Unemployment rates remain above 13 percent in Buffalo and Elmira, for example. In general, the unemployed manufacturing workforce has not been called back in large numbers. Other weak spots include the agricultural sector and, possibly, the office construction industry as well.
Some local firms are beginning to increase their borrowing from banks as economic activity strengthens, but overall the pickup remains spotty. New inflows of deposits associated with the MMDAs have encouraged banks to be more aggressive in expanding loans to businesses, and demand has strengthened for construction loans, inventory financing, and loans to computer-related companies. Nevertheless, in the industries and regions where the economic recovery has not been felt, loan demand remains very sluggish.
On the price side, only a little immediate upward pressure has been felt on most prices. However, some shortages of construction materials have developed, and the increasing cost of medical insurance is raising widespread concern.
Manufacturing
With the exception of the heavy industrial plants of the Buffalo
area, most District manufacturers are reporting increases in orders
and shipments. The high technology sectors on Long Island and in the
Albany area have done especially well, and the automotive suppliers
near Jamestown and Syracuse are beginning to resupply the "Big
Three." However, growth in output has not yet translated into
decreases in unemployment in most places. Unemployment in all of the
District's major labor market areas, except Poughkeepsie, remains
higher than it was a year ago. Employers, for the most part, have
been increasing the length of workweeks instead of recalling laid
off workers.
Retailing
The District's major retail chains continue to compete intensely for
market share. Sales to middle income households especially have been
described as a "competitive blood bath". The stores serving high
income clientele have enjoyed the largest sales increases over last
year, while the lower priced chains have had substantially smaller
gains.
The Financial Sector
The drop in interest rates since last summer continues to improve
the earnings outlook for thrift institutions in the Second District.
On average, quarterly losses at New York State mutual savings banks
were considerably smaller in QI 1983 than during 1982. Similarly, by
the end of 1982 over half of the savings and loan associations in
New York and New Jersey had turned profitable, and more recently
this proportion has risen further.
Deposit inflows at thrifts have increased as a result of the MMDAs, particularly outside of New York City. New savings inflows to New York and New Jersey S&Ls have picked up in 1983, and recent inflows appear to have been the strongest in several years. At New York mutual savings banks, the rise in net deposits since last year has generally been more modest. In part this reflects the high degree of competition for funds in the New York City market. Moreover, some of the savings banks are not aggressively expanding their liabilities as a result of concern over their capital positions.
Public Finance
The continuing strong performance of the New York City economy—led
by the finance and service industries—has improved local fiscal
circumstances markedly. In January the City's financial analysts
were predicting a large deficit and local leaders were planning
large tax increases and the layoffs of some 4,000 school district
employees. Since then, revenue collections have exceeded
expectations in every month. The latest projections envision a
substantial budget surplus, and plans are being considered for
service improvements.
The stronger than expected performance of the City's economy and the improved condition of its treasury helped pave the way for New York's reentry into municipal bond markets. The City's first competitive bond issue since the fiscal crisis of the mid 1970s recently received a respectable welcome in the market, although still at a relatively low credit rating.
Agriculture
The wet weather this spring is not expected to reduce crop
production in New York State. However, net farm income was flat in
New York last year and is expected to remain so this year. Corn
acreage has been reduced through the Payment in Kind program, but
PIK does not apply to New York's large dairy and fruit industries.
Agriculture should, therefore, remain a weak sector of the District
economy.
Construction and Real Estate
Housing sales and construction continued to increase in May though
they were curtailed somewhat by the bad weather. In recent weeks
some signs have emerged that buying activity has spread to smaller,
less expensive homes, in contrast to the first quarter when sales
were largely confined to the more expensive end of the market.
In the northern and eastern suburbs of New York City and in Syracuse, commercial real estate and construction markets remained quite active. In other areas, the amount of new space about to come on market suggests that construction starts will be sluggish through 1983. However, most observers of commercial real estate in the District remain optimistic regarding the prospects for filling existing office space and expect new construction projects to follow before too long.
Wages and Prices
With two exceptions, major wage or price increases are not likely
this year. Most wage settlements are calling for increases below six
percent, and most industries apparently consider competition too
strong to venture significant price increases.
One exception is building materials. Contractors are experiencing shortages of lumber and of skilled labor. However, increases in the prices of these inputs are typical during the early phase of an expansion of housing construction.
The second exception to the general picture of price stability is causing more concern. The costs of health care, and therefore of employee medical insurance, continue to increase quite rapidly. Employers are beginning to experiment with and even implement changes in their medical insurance programs aimed at reducing these costs. Some savings have been realized, but changes are meeting employee resistance.