May 6, 1985
Introduction
Economic activity in the Second District has continued to expand at
an erratic pace. Department store sales softened in parts of the
District, particularly in New York City. Business activity improved
somewhat, as new development projects and expansions outnumbered
plant closings and layoffs. Homebuilders continued to operate at
full speed, impeded only by scarce labor and materials. The
District's office markets were mixed, with strength in midtown
Manhattan and Long Island, stability in Westchester County and
northern New Jersey, and weakness in downtown Manhattan and
southwestern Connecticut. Large New York City banks have been facing
relatively modest asset growth. In contrast, small banks reported
that the strength in the region's economy has led to strong demand
for home mortgages, automobile financing, and business loans.
Consumer Spending
Department stores reported that the rate of consumer spending had
slowed appreciably in parts of the District. In February, sales
generally met expectations and were about 10 percent over last
year's levels. Sales in March, however, fell significantly below
expected levels for two department store chains and early reports
for April reflected continuing softenings. It appeared that New York
City retailers faced the weakest sales while some suburban and
upstate New York merchants reported continuing gains. Inventories
have been kept in check by most stores contacted, but one merchant
facing persistently weak sales reported stocks that were above plan
and rising.
Business Activity
Business conditions for the District's industrial firms have
improved somewhat in recent weeks. In Rochester, more firms reported
increased orders than in earlier months. For Buffalo, improving
conditions have not become any more widespread, but the number of
firms reporting worsening conditions was down significantly. In
general, desired inventories have been rising lately, perhaps
reflecting the improved outlook for sales many firms reported.
Although some layoffs and plant closings continued, there was a significant increase in announcements of new development projects and expansions. An automobile producer will spend over $100 million to refurbish and retool a stamping plant in Buffalo. Another auto plant is recalling its night shift of 2,200 workers in Tarrytown. Also planned are a large computer center in Rockland County, a new chemical facility in Western New York, a power plant near Albany, and the expansion of a ship terminal on Staten Island.
In the aggregate, however, manufacturing remains a weak spot even with record high employment levels in New York State. The largest plant closing announced recently was a Syracuse chemical plant, which will eliminate 1,400 jobs beginning early next year.
Construction and Real Estate
Commercial real estate activity continued to vary markedly by
location and type of user. The demand for office space was strong in
midtown Manhattan and Long Island, steady in northern New Jersey and
Westchester County, and weak in downtown Manhattan and southwest
Connecticut. Brokers in Manhattan, New Jersey, and Connecticut
reported strong demand among small space users but surprisingly low
activity for mid-sized spaces. Demand for large spaces in midtown
Manhattan remained strong, especially in the services sector.
Downtown, in contrast, net space absorption has fallen to zero in
recent months. In Nassau County (Long Island), conversion of space
to office and retail uses has made space very scarce for industrial
firms.
The housing market was little changed from activity levels prevailing for the past year. Builders remained very busy in many parts of the District and several faced scarcity of skilled labor or lumber and sheetrock. The outlook for the next six months is for continued strength. In New York City, the first 800 apartments to be built with funds from the State's Municipal Assistance Corporation have been scheduled for construction this summer.
Financial Developments
Large New York City banks showed relatively modest growth of assets.
But reports from small banks in the Second District indicated that
the demand for several categories of loans has been growing rapidly
over the past few months, more in line with national trends. The
demand for home mortgages has been especially strong, owing to the
region's robust market for new homes. The increasing demand for
automobile financing was a major factor in the rapid expansion of
consumer credit. Business loan activity has also increased rapidly,
spurred by strength of economic activity across all industrial
categories.