June 25, 1984
Introduction
The pace of the recovery in the Second District stabilized in May
and early June. Business activity continued to expand in most
sectors of the District, and the unemployment rate fell in New
Jersey and remained below the national average in New York.
Purchasing agents generally reported stable or improved business
conditions, a number of manufacturers were planning to modernize or
expand their facilities, and banks throughout the District reported
rapid growth in business loan demand. Construction activity was
strong and, in the residential sector, was at full capacity in some
parts of the District. Consumer spending continued to meet or exceed
retailers' expectations.
Consumer Spending
Department stores in the Second District posted better than expected
sales gains during the month of May, as consumer spending continued
at the fast pace set in April. Though increases over last year
varied from four to twenty one percent among individual retailers,
in most cases the volume of sales net or exceeded expectations.
Retail sales during the first two weeks in June were also quite
strong.
Inventories at the end of May remained at high levels for many retailers, ranging front fifteen to thirty percent above those posted last year. Some retailers view these levels as too high and have responded with markdowns and promotions. Other chains, however, have deliberately increased stocks because strong consumer demand is anticipated.
Business Activity
Growth in District business activity has continued, but at a
somewhat slower pace in recent weeks. The percentage of purchasing
agents reporting improved business conditions declined in May from
April's record levels, and the percentage reporting higher
inventories rose. Nevertheless, most agents experienced stable or
improved business conditions, and they generally viewed the
inventory buildup as reflecting increased confidence in the strength
of the local economy.
The District continued to have a greater share of its labor force at work than the nation as a whole. In May, New York State unemployment remained at the April rate of 6.7 percent, and New Jersey unemployment dropped a full point to 5.7 percent. The rate in New York City dropped slightly to 7.6 percent on an unadjusted basis.
Several recent announcements painted to additional economic gains in various parts of the District. Plant shutdowns planned for northern New Jersey and Westchester have been cancelled; instead one plant will be modernized and the other will be converted to mixed industrial uses. In addition, a $100 million plant expansion has begun in New Jersey and on Long Island a $126 million International Design Center project has been initiated.
Construction and Real Estate
Residential construction activity remained very strong throughout
the District. However, limited building capacity has reduced the
pace of sales in spite of continued high levels of demand. In fact,
some builder in parts at the District have suspended sales because
they are unable to accommodate more business.
Non-residential real estate activity was strong in most parts of the District. In lower Manhattan, major institutions continued to seek large amounts of office space, although some securities dealers and financial institutions have been moderating their expansion plans.
Long Island commercial and industrial construction was active, and its relatively low rents continued to lure companies from New York City.
Construction also rained brisk in New Jersey although sizable amounts of space are currently available. Construction in lover Connecticut leveled off, and activity in the northern suburbs of New York remained low.
Financial Developments
During the past several months small banks in the Second Federal
Reserve District experienced rapid growth in business loan demand.
The reasons cited for the increase were the strength in the local
economy, inventory accumulation, and leveraged buyouts of local
business. Some of the regional bankers, however, expect loan demand
to taper off in the next few months if the local economy slows down
as expected or if there is another hike in the prime rate.