March 12, 1985
Introduction
The District's uneven economic expansion has continued. The pace of
consumer spending was mixed in recent weeks, with some suburban
retailers report reporting continued strength and others noting weak
sales even with aggressive promotional activity. There were a few
signs that the pace of the District's business expansion may be
slowing, but so far the employment picture has been quite good. The
housing market remained robust, with construction only delayed by
bad weather. The demand for office space has been picking up in much
of the District, although inventories remained high. Small banks
reported continued strength of commercial and industrial loan
demand.
Consumer Spending
Retail business in the Second District was mixed in recent weeks in
a highly promotional environment. Most chains doing business in
suburban areas, especially discounters, continued to fare well. Some
merchants, however, reported weakness in January and into February.
Sales for one New York City merchant fell during the period despite
deep price markdowns. And an upstate New York retailer indicated
that sales rose only moderately, in part due to heavy snowstorms.
Inventories have been brought down to desired levels-to about 10
percent above 1984's holdings—at most stores contacted. One
department store chain, however, reported continued growth of its
stocks, to nearly 20 percent above last year's level, and has
further reduced its orders for spring merchandise.
Business Activity
The Second District's business expansion has continued but its pace
appeared to be slowing. While a majority of purchasing agents still
reported either stable or improved business conditions in January,
there was also a sizable increase in the number of agents whose new
orders had declined. Businessmen seemed somewhat less optimistic
than they did last month. Inventories, however, were currently
deemed by most to be at satisfactory levels.
The employment picture remained very strong, although there were a few early signs of a possible slowdown. Employment in both New York and New Jersey remained at record high levels, unemployment rates were well below the national average, and several major employers have indicated their intention either to maintain or to increase employment in the District during 1985. However, layoffs and plant closings have become somewhat more prevalent. Firms announcing contractions included a drug manufacturer in northern New Jersey, a typewriter maker and a bottle manufacturer in upstate New York, and an aerospace producer on Long Island.
Construction and Real Estate
Cold weather has temporarily slowed residential construction
activity. The demand for houses, however, has remained robust.
Builders in many parts of the District expected 1984's record levels
of activity to continue throughout 1985.
The housing market nay be affected by several bills pending before state legislatures. In New York the renewal of rent regulations and various tax incentives are being considered; New Jersey's legislature is debating action on court-ordered low-income housing construction in suburban areas. Proposed bills in both states would also increase subsidies for low- and middle-income housing construction, directly and through reduced-interest mortgages.
Real estate brokers in many parts of the area noted that the nonresidential real estate market has stabilized in recent weeks, even though inventories were on the high side. The demand for office space has increased in Downtown Manhattan, owing in part to the recent strength of the stock market and the banking sector. Leasing activity was high in Midtown Manhattan and on Long Island. In contrast, demand was weak in northern New Jersey and Fairfield County in Connecticut, and observers believed that the large extent of speculative building underway in these areas has not been warranted by the current rate of space absorption. Westchester County (New York) has been an intermediate case: demand was viewed as satisfactory but large additions of new space next spring nay upset the current equilibrium.
Financial Developments
Commercial and industrial loan growth at small banks remained fairly
strong in recent weeks, in contrast to the continuing contraction at
major New York City banks. According to the small banks contacted,
the strength of loan demand came in response to a reduction in loan
rates that was prompted by strong deposit inflows at lower interest
rates. Industries with particularly strong loan demand included
small manufacturers, homebuilders, and a wide variety of small
businesses. Respondents expected this level of activity to continue
for at least the next three months.