December 6, 1983
Introduction
The pace of the recovery seems to be picking up a bit in the Second
District. Consumer spending is strong, and retailers say that early
indications point to a good holiday season. Manufacturing activity
continues to expand at a moderate pace, and observers of the upstate
economy feel that the worst is finally over. Homebuilders are
working at capacity, and have become more optimistic about the
outlook for next year. Office construction remains strong and
leasing activity continues to grow in much of the District. Spending
on infrastructure should be substantial in the months ahead since
voters in New York and New Jersey recently approved the issuance of
$l.4 billion of transportation bonds. On the financial side,
consumer borrowing strengthened somewhat, in part due to stronger
demand for auto loans.
Consumer Spending
Retail spending improved further in late October and November and
the gains at District stores were broadly based. Several chains,
running the gamut from high-income to discount stores, reported
double-digit increases over the comparable period a year ago. The
sharpest improvement occurred in an upstate chain which had been
doing poorly most of the year. Sales at most stores were reported at
planned levels or even higher, with only one respondent noting a
weaker than expected increase. Furniture and various kinds of
apparel were mentioned as products in strong demand. Inventories
were generally reported at satisfactory levels, increasing only in
line with sales. However, one chain mentioned problems in keeping up
with demand for a few hot items. Most District retailers anticipate
that this Christmas season will be stronger than last year's.
Consumers have begun their buying earlier, and sales for the first
few days of the season have been quite encouraging.
Construction and Real Estate
Residential construction remains strong throughout the District,
aided by unseasonably mild weather. However, shortages of skilled
labor and some materials continue to delay building activity in New
York City suburban areas. Homebuilders remain booked through the
spring and the outlook for next summer is generally improving.
Customer traffic has been heavy and increasingly composed of serious
buyers. Nevertheless, a few builders, fearing higher interest rates,
are concerned about possible reduced demand in the months ahead.
The nonresidential real estate market remains active and has shown further improvement. New leasing commitments are being made around the District at a rapid pace. Manhattan is particularly strong, and as a result, confidence is now growing in the ability of this market to absorb the new office space currently under construction. However, some concern has developed about possible overbuilding in parts of New Jersey and Connecticut.
The State governments of New York and New Jersey have received voter approval for increased borrowing for infrastructure renewal. In November's elections a total for the two states of $1.4 billion was authorized for extensive upgrading of roads, bridges and public transportation.
Business Activity
A further moderate expansion in District manufacturing activity
occurred during recent weeks. The automotive sector continues strong
with some firms, which had been using their existing workforce
overtime, now reporting sufficient demand to allow new hiring.
Capital goods manufacturers have also begun to show some
improvement. Several have now returned to full workweeks after
months of operating on shortened schedules. In addition, spending
for plant and equipment is underway or planned by various industries
such as computers, medical equipment, and health and beauty
products.
Some upstate areas that were particularly hard hit by the recession now report a much more optimistic outlook and a feeling that the worst is over. In Buffalo, for example, the latest survey of purchasing managers showed the highest percentages reporting increased new orders and employment in several years.
Unemployment rates in most District labor market areas are generally below their levels of a year ago. However, while employment has been increasing in recent months, it still remains well below year-ago levels in several areas.
Financial Developments
Consumer borrowing has strengthened somewhat in the region.
Discussions with bank representatives in the Second District
indicate that most institutions are becoming more aggressive in the
consumer loan market by reducing rates and increasing advertising.
The demand for auto loans, in particular, has been up sharply
because of bank promotions, termination of auto finance company
incentives, and introduction of new car models. Some banks also
report increased issuance of bank credit cards and higher
outstanding balances on these accounts.
In line with the national trend, District banks have been stressing adjustable rate mortgages (ARMs). About half of new mortgages are ARMs, and several institutions report that all their new mortgages are adjustable rate. However, portfolios still remain heavily weighted with fixed rate instruments. The spread between interest rates on fixed rate and adjustable rate contracts is currently at about 2 percentage points. This spread has narrowed only slightly in recent months.