September 20, 1983
An uneven economic recovery in the Second District continued in August. Consumer spending appeared to be slowing from the extraordinary pace of early summer, though gains over 1982 were still substantial at some stores. Residential construction was strong; homebuilders are booked up for the next few months. Nonresidential construction improved further, with some industrial and commercial projects getting underway. Most manufacturers saw a pickup in activity, but heavy goods producers saw little improvement. In the agricultural sector, a summer drought damaged corn and hay crops, but harvests of fruit are expected to be high. On the financial side, business lending was flat and automobile loans picked up.
Consumer Spending
Retail activity continued to slacken in recent weeks. Although some
department stores still achieved healthy double-digit gains over a
year ago, the volume of sales in August was generally lower than in
May and June. The pace appeared to be slowing further in early
September. One middle-income chain experienced four straight weeks
of declining sales and reported that by early September, volume was
less than last year. Some merchants felt that hot weather was a key
factor in depressing sales, especially those of autumn apparel.
Retailers are hopeful that business will pick up when the weather
cools.
Construction and Real Estate
Residential construction continued at a rapid pace. Builders of
custom homes are fully booked through the next few months, and
speculative projects, mostly condominiums, are increasing, This
activity has caused shortages of supplies and labor to become more
severe. Despite the current activity, builders are anxious about
next spring. Traffic has fallen recently. While such a slowdown is
normal around Labor Day, there is concern that higher interest rates
may be discouraging buyers. If the normal pickup in October fails to
materialize, construction will fall off during the first half of
next year.
The nonresidential real estate market continued. to improve throughout most of the District. Leasing activity increased further in downtown New York, New Jersey, and on Long Island. Although new starts of office construction remained rare, our contacts reported that some buildings are being planned, Furthermore, several industrial and commercial development projects are planned or underway in New York City's outer boroughs, with a good deal of public sector participation. And plans for major retail mall projects have been reported in Manhattan, Long Island, and the Albany area.
Business Activity
Manufacturing activity continued to pick up throughout the District,
but the extent of the upturn was uneven. High technology companies,
including producers of computers, semiconductors, defense
electronics, and medical equipment, experienced the sharpest gains,
and several of these firms announced expansion plans. In other
industries, such as plastics and instruments, sales gains were
modest. In heavy goods industries, however, no significant pickup
has been reported. While steel production rose marginally in Western
New York, almost half of the industry's capacity remained idle. And
although capital goods producers were finding more projects on which
to bid, they had still not observed any significant rise in solid
orders.
As for employment, a state labor official felt the job market was just beginning to turn up, with the strongest relative improvement in the services and construction sectors. By contrast, some major insurance companies reported efforts to cut costs by reducing employment levels or by moving jobs outside Manhattan. Unemployment District-wide remained below the national level, but in some areas, re-entrants to the labor force were expected to keep rates high even as employment levels rise. In New York City in particular, the rapid increase in the labor force pushed unemployment to 10.6 percent in July and August.
Agriculture
In the agricultural sector, bad weather has damaged some crops but
has had little effect on others. The drought during July and August
depressed yields per acre for corn and hay. In contrast, wheat was
harvested early during the dry spell, and yields were high. The
fruit-growing regions had adequate rain, and good crops are
expected. The apple harvest may be one of the largest on record.
High yields and low demand for New York wines have combined to
depress the price of grapes, however. In the dairy industry, high
production has limited price increases, and profits are expected to
be squeezed as feed costs climb.
Financial Developments
Banks surveyed in early September reported that business lending
showed little improvement. Any increase at individual institutions,
moreover, was, attributed to their marketing efforts rather than any
improvement in overall loan demand. Most institutions in the region
have taken an unaggressive approach to mortgage lending as rates
have backed up and demand for loans has dropped off . In contrast,
the volume of both direct auto loans and dealer paper has picked up
during the summer as auto sales have surged. Further, the
competitive position of banks is expected to improve as many
interest rate promotions of auto finance companies end. With the
deregulation of most types of consumer time deposits beginning
October 1, some institutions have begun extensive promotional
campaigns, in some cases offering retail, repurchase agreements at
high rates until October 1 when the funds will be converted into
longer term time deposits.