January 30, 1985
Introduction Economic activity in the Second District advanced at an uneven pace in recent weeks. Consumer spending strengthened during December and on into early January. The demand for new homes was also strong and residential builders are quite optimistic about their prospects in 1985. While overall employment reached record levels, district purchasing managers for the most part reported that production and new orders were unchanged in December. The absorption of office space remains slow in many areas with vacancy rates showing little improvement.
Consumer Spending
On balance, December retail sales were strong in the Second
District, despite some softness early in the period. Sales gains
over December 1983 generally ranged between five and ten percent as
area stores engaged in extensive advertising campaigns and heavy
price markdowns. Retailers became apprehensive at the start of the
month when spending slackened. As the holidays approached, however,
sales picked up considerably and continued at a brisk pace well into
January.
The inventory situation among District retailers was mixed at year- end. While most reported stocks at comfortable levels, some expressed the need to reduce excess inventories in the weeks ahead.
Construction and Real Estate
Residential construction activity remains strong. While the arrival
of cold weather has slowed the rate of exterior work, interior
subcontractors report a high level of activity even though this is
usually their slack period. Optimism about the months ahead is high.
One electric utility, for example, has already received more orders
to supply connections for housing subdivisions this year than in all
of 1984. In addition, in response to the heavy volume of customer
traffic, prices of new homes in some downstate areas are reported
rising by as such as ten percent. While lower mortgage rates have
undoubtedly made homebuying more affordable, their recent decline
does not seem to be a major factor in the strength of District
construction.
The absorption of new office space remains slow in many parts of the District and vacancy rates in these areas showed little improvement. In northern New Jersey, Westchester and Fairfield counties, observers report that markets are relatively soft and leasing activity is slow. Manhattan is a major exception where demand continues strong in midtown and some large space users recently signed leases in the downtown area. Another exception is Long Island where commercial leasing is described as fairly brisk with a resultant reduction of inventories there.
Business Activity
The pace of the business expansion in the Second District leveled
off during recent weeks. In December the majority of purchasing
agents reported no change in business conditions while the
percentages reporting gains or declines in new orders were virtually
offsetting. Inventories are considered to be at satisfactory levels,
particularly after several weeks of paring by Buffalo area firms.
District businessmen are generally optimistic about the outlook over
the next six months though some expressed uncertainty about the
overall economy.
Plans for several new or expanded industrial projects have recently been announced. Among these are a record $554 million in capital expenditures scheduled by a Rochester manufacturer for 1985, a $200 million natural gas co-generation plant to be built in Syracuse, and a $125 million expansion by an upstate paper maker. In addition, the Port Authority of New York and New Jersey and the New Jersey Economic Development Authority plan to convert several buildings which were abandoned when firms left Yonkers and Elizabeth into two new industrial parks.
Employment continues at record high levels in New York and New Jersey. Moreover, during 1984 New York City had its largest employment gain since record-keeping began in 1950. December unemployment rates were at or below the national [seasonally adjusted rate of 7.3] percent in both New York State and New Jersey.
Financial Developments
Despite the continued strength of district housing activity, some
upstate commercial banks report no upturn as yet in the demand for
mortgage loans. Seasonal elements have been suggested as an
explanation of at least part of the sluggish demand. In same areas,
relatively high unemployment rates have also been cited. Banks seem
confident, however, that continued lower mortgage rates should
reverse this pattern in the first quarter of 1985.