October 23, 1985
Some signs of a pickup in the Second District economy have appeared in recent weeks. Retailers report that August sales were the best in several months, and they attribute the slowdown in September to unseasonably warm weather and Hurricane Gloria. Business activity is generally described as stable or improved, despite continued layoffs by some manufacturers who are consolidating operations outside the District. Commercial leasing activity has increased in most areas, but office availability rates are still high. Throughout the District the demand for new homes remains strong. Small banks in the District report a decline in car loans due to lower cost financing by auto manufacturers.
Consumer Spending
Retail sales in August averaged 9 percent above year-earlier levels,
the first substantial advance after a prolonged period of
sluggishness. Brisk back-to-school business and a better-than-expected response to new fall fashions were cited as major factors.
As a result, some stores posted their first above-plan sales figures
in several months. Preliminary data indicate some slowing during
September, but this was generally attributed to summer-like weather
and the impact of Hurricane Gloria. However, one discount-chain
contact suggested that the high level of consumer debt is hindering
sales of its durable goods, and another retailer speculated that
auto promotions have reduced general merchandise sales.
After several months of heavy promotional activity, most department stores had trimmed their inventories to desired levels by the end of July. Inventories have remained on target, and District retailers are generally optimistic about the fall and holiday seasons ahead. Some are already stockpiling possible hot-selling items such as Cabbage Patch dolls and robot transformers.
Business Activity
Economic activity in the Second District was stable to somewhat
improved in recent weeks. In both Buffalo and Rochester, for
example, an increased percentage of purchasing managers reported
that business conditions were either unchanged or better during
August. Inventories there remain at comfortable levels. In other
parts of New York State and New Jersey, conditions were also
described as generally stable although some manufacturing firms
continue laying off regional workers and consolidating operations
outside the District in an attempt to become more competitive.
Passaic, New Jersey was a major exception to this pattern of
stability: a widespread fire in its industrial area recently
destroyed 62 small plants which employed 2,200 workers.
While the September unemployment rates remained below the national average in New York State and New Jersey, some employment cutbacks are expected in the District as a result of restructuring plans recently announced by AT&T Information Systems and Union Carbide. In addition, the redesign of an automotive plant in New Jersey will temporarily reduce employment in that sector by 4,200 workers over the next 12-16 months.
The overall effect on employment is difficult to project, however, since other firms continue to move into and expand within the District. Major investments recently announced included the purchase of a former Western Electric plant in New Jersey for conversion to an industrial park, the approval of the $15 million first step in the Port Authority of New York and New Jersey's $500 million waterfront project in New York City, and the purchase by local investors of two Buffalo area plants assuring the retention of at least 2,200 jobs and perhaps the addition of others.
Construction and Real Estate District homebuilders report no letup in the busy pace of their activity. Demand for new homes remains strong and the rush is on to complete as much work as possible before cold weather arrives. In addition, in Connecticut and Long Island where Hurricane Gloria was especially damaging, the demand for skilled labor and building supplies has increased even more. As a result, extensive delays in rebuilding and repairs have been noted there. Most District homebuilders expect residential construction to continue strong at least through early next year. However, they anticipate a somewhat less hectic pace than in 1985.
Nonresidential leasing activity has picked up in much of the District. Observers in Westchester and Fairfield Counties report an increase in leases signed. and in northern New Jersey the number of leasing inquiries is rising. In many areas, however, the supply of office space still greatly exceeds demand. Opinion is divided about the direction of the downtown Manhattan market. Although the availability rate there has increased, it remains among the nation's lowest.
Financial Developments The special incentive financings offered by auto manufacturers have reduced car lending activity at small District banks, especially in August and September. Since the cost of raising funds has not declined recently for small District banks, they were unable to match the rate reductions offered by finance companies. Although some banks noted that lending has begun to pick up, a new round of incentive financing on autos is expected soon.