March 16, 1987
The Second District's economy showed some gains since the last report. January retail sales were mixed, but a decided improvement was noted in February. While residential construction was seasonally slack, a pick-up in office leasing was noted in several areas. Some improvement also occurred in District business activity. Most small and mid-sized banks report a noticeable slowdown in IRA deposits for this time of year.
Consumer Spending
The pattern of sales at District department stores was mixed during
January as consumer spending ranged from somewhat below to
considerably above retailers' expectations. However, a decided
improvement was noted in February by those stores reporting early
results, and one respondent characterized the month as "unbelievably
good".
Foreign visitors utilizing their stronger currencies are still mentioned as one factor bolstering District spending; another factor is the health of its economy relative to areas with oil and farm debt problems. Items for which there was good demand during January were most types of apparel, jewelry and accessories; February's sales gains resulted from consumer buying across a wide spectrum of merchandise. As a result of both the recent strength in sales and a conscious effort to monitor stocks, retailers report inventories ranging from well below desired levels to on plan.
Business Activity
Some improvement occurred in the District's economic expansion in
recent weeks. More than one-third of the purchasing managers in the
Buffalo and Rochester surveys reported that general business
conditions were better in January, up from 25 percent in December.
Overall employment has grown in the District, though the manufacturing sector continues to decline. The February unemployment rates of 4.1 percent in New Jersey and 4.9 percent in New York were the lowest since the early '70s and are well below the national average. Moreover, the over-the-year reduction in the New York and New Jersey rates was three times the national decline.
Recent announcements point to a mixed impact on the District's economy. On the one hand, G.M.'s decision to produce its new mini-vans in Westchester County will secure several thousand jobs there for a number of years. On the other hand, several other long-established firms plan to curtail or phase out operations with a resultant loss of many jobs. In addition, while central New York will gain hundreds of jobs as the result of a recent merger, Buffalo and northern New Jersey will lose at least the same number due to that same consolidation.
Construction and Real Estate
Residential construction has been seasonally slack, but homebuilders
in most areas continue to anticipate considerable demand for new
homes in 1987. Plans for several new types of housing development
have been announced in recent weeks. In downtown Stamford,
Connecticut, where until now only new office building has been
undertaken, construction of the first high-rise condominium is to
begin this summer. In Newark, New Jersey the mayor recently signed a
contract for the construction of 650 moderately-priced townhouses,
the largest addition to that city's housing stock in decades.
Finally, in New York City several programs are planned or underway
to provide new middle and low income housing. Since a shortage of
affordable housing is increasingly being mentioned as a deterrent to
further economic growth in the New York metropolitan area, these new
undertakings should help in this regard.
A pick-up in office leasing activity was noted in several parts of the District during recent weeks, and with the continued slowdown in new construction projects, lower vacancy rates are anticipated in a number of areas. Westchester, for example, reports strong demand for both large and small blocks of space in its new buildings, while in Manhattan some observers expect the office vacancy rate to decline to 9 or 10 percent in 1987 from its 10 to 13 percent range last year. Elsewhere in the District, industrial space is reported in short supply in northern New Jersey, particularly in areas near New York City or major highways, and prices of land and buildings have risen sharply. Upstate New York expects 1987 to be a busy year for nonresidential construction as the result of congressional appropriations for extensive expansion and renovation of three military bases in the area.
Financial Developments
Most small and mid-sized banks in the Second District report that
there has been a noticeable slowdown in IRA deposits from the usual
inflow at this time of year. Most of the banks surveyed indicated
that the decline stems from confusion concerning the impact of the
new tax law, and the low interest earned on IRA deposits. Many bank
customers are unaware that there is still time to make an IRA
deposit and claim a deduction for the 1986 tax year. In addition,
others have reservations about making the investment because of
concerns about the future impact of the tax law on money already
placed in IRAs. One of the banks indicated that some of its own
officers were not well informed about the implications of the tax
reform, and were reluctant to suggest IRAs as an investment. Most
banks added that these problems have been compounded by the current
low interest rates available on IRA deposits and restrictions
concerning withdrawal of these funds. All of the banks indicated
that uncertainty concerning the tax law and the low level of
interest rates would have an even more striking impact on the surge
of activity which usually occurs as the April 15 deadline nears.