March 13, 1984
Introduction
Economic activity in the Second District continued to expand during
recent weeks though at a somewhat uneven pace. Consumer spending
slowed in January, but rebounded the following month. Manufacturing
activity showed further improvement. Several firms announced plans
to build or modernize plants, and purchasing managers are
increasingly optimistic about the level of orders in 1984. The
demand for homes has picked up, and builders expect to be busy
through the summer. On the financial side, District banks remain
willing to accommodate the strong demand for consumer installment
loans.
Consumer Spending
District department store sales slowed early in the year from their
brisk holiday season pace, hut regained momentum in February. Sales
growth over year-ago levels generally ranged from flat to 10 percent
in January and from 10 percent to 27 percent in February. In part,
the large increases in February were due to a major snowstorm that
hampered sales a year earlier. Even among individual retailers, the
January-February period was marked by extremes. One major retailer,
for example, reported January sales were little better than the
year-ago level, but February's were 20 percent greater than in 1983.
In contrast to the past few months when inventories were generally satisfactory, two major retailers noted unexpectedly high inventory accumulation in January. One intends to increase promotions and markdown, in order to reduce the overstock, but the other anticipates sufficient sales volume in coming months to resolve the problem. In general, our contacts are optimistic about sales in the near future.
Business Activity
Manufacturing activity in the District continued to improve at the
same moderate pace of the last few months. The automotive industry
remained strong and two transportation-related companies recently
announced sizable investment plans for the production of new engine
and tire lines. Makers of defense products and capital good
manufacturers also registered gains. In addition, some upstate areas
report an upturn in specialty steel orders. Activity in basic steel
remains sluggish, however, and plans to close a foundry were
announced.
Firms in a variety of industries announced plans for new buildings or expansion and modernization of existing plants. These projects include a computer products facility, an accounting services firm, a glass manufacturer and a sheet metal plant. Moreover, surveys of purchasing agents and manufacturers in several upstate areas indicate a widespread optimism concerning the outlook for area businesses in 1984 and plans for additional capital expenditures.
Employment levels are now higher than a year ago throughout the District although many areas have not regained their pre-recession peaks. Unemployment rates generally are well below year-earlier levels.
Construction and Real Estate
Demand for new housing has been surprisingly strong recently, and
some builders now anticipate even higher levels of activity than
last year. Demand by interest-sensitive, middle income buyers is
particularly apparent in the southern part of the District. Stable
interest rates and greater acceptance of adjustable rate mortgages
are two factors cited for the attraction of middle income buyers.
Over the longer term, the level of residential construction is
likely to be boosted in the next few years by a series of court
decisions mandating new low and middle income housing in parts of
New Jersey.
The nonresidential market has been mixed in the District. The demand for space in Midtown Manhattan improved further in recent weeks, and was characterized by one real estate broker as "fantastic". Downtown Manhattan is also active, continuing the pace of recent months. Many firms seeking large blocks of space are said to be negotiating leases. However, the market softened somewhat in suburban areas of Westchester and Fairfield Counties, and western Nassau County, where large amounts of new office space have recently come on line.
Financial Developments
Sizable deposit inflows during 1983 have contributed to banks'
willingness to accommodate strong consumer loan demand. While profit
margins on consumer loans have fallen somewhat because of the
continued high cost of funds, banks are still competing aggressively
for larger shares of the market. Noting that consumer demand for
funds usually picks up in the spring, some banks plan special
promotions in the near future to try to gain additional market
share.