Beige Book Report: New York
June 23, 1987
The modest uptrend in the Second District economy continued in recent weeks. Most retailers had sales gains that were at or above plan, and residential construction remained strong. Business activity showed some improvement, and demand for office space was generally good. Small and mid-sized banks report that consumer loans continue weak, however, despite increasing attempts to attract borrowers.
Consumer Spending
Second District department store sales were relatively strong in
recent weeks according to our contacts. Due to the late Easter this
year, sizable over-the-year gains during April had been anticipated.
However, the 13 to 16 percent increases actually posted were
generally larger than had been targeted. May sales gains of 7 to 9
percent were for the most part in line with expectations. The major
exception was a respondent whose May sales rise of 19 percent was
even greater than his year-over-year April increase.
In line with the Easter holiday and spring season, the items mentioned as most heavily in demand were adult apparel and various items for children. Most respondents reported that, as a result of recent sales activity, inventories remain on or close to plan. However, one retailer, who noted a slowing of sales momentum in May, described his inventories as "a little heavier than desired".
Business Activity
A pickup occurred recently in District economic activity. Both the
Buffalo and Rochester surveys of purchasing managers registered an
increase in those reporting improved business conditions in May, and
no respondents in. Rochester experienced a worsening. In April, both
surveys had shown a decline in the percentage of firms with better
conditions, though the percentage with either stable or better
conditions was essentially unchanged. The May reports also showed a
sharp drop in firms encountering higher commodity prices.
District unemployment rates of 4.2 percent in New Jersey and 4.8 percent in New York remain well below the United States average. However, some recent developments have elicited considerable concern about the District's employment outlook. A Labor Department study just released shows that from 1984 to 1987 manufacturing jobs declined much more rapidly here than nationwide. In addition, two major corporations announced plans to move their corporate headquarters and 6000 employees from the region over the next year or so. Much public discussion has ensued about what is needed to avoid the exodus of other major corporations as well as about the increased vulnerability of the District's economy due to its narrowing industry mix.
Construction and Real Estate
Residential construction activity is strong in the Second District
and builders continue to anticipate that this year will see a high
level of homebuilding. While some areas expect a slowing from last
year's hectic pace, other newly developing areas look for an even
higher rate of activity. The rise in mortgage rates has apparently
not yet had much of a dampening effect and, in fact, may be
prompting some additional demand in additional of further rate
increases. However, a cautious note has been injected into the
outlook in northern New Jersey where a shortage of affordable land
has been an increasing problem. An 18-month moratorium has just been
declared on building in the New Jersey wetlands and its impact on
residential development is uncertain.
Office leasing activity in the Second District has continued at a good pace with reports of brisk demand in the midtown Manhattan market. Although the recently announced plans of Mobil and J.C. Penney to move their corporate headquarters from Manhattan mean the release of an additional three million square feet, the consensus seems to be that this can be accommodated with no real difficulty. A major new project getting underway is a $900 million complex of offices, condominiums, and stores in Jersey City. While the overall vacancy rate in northern New Jersey remains high, this project on the Hudson River is reportedly at a prime location because of its proximity to public transportation as well as New York City.
Financial Developments
Small and mid-sized banks in the Second District report that growth
in consumer loans has remained weak in recent months, despite
increasing attempts to attract borrowers. Banks indicated that
originations of personal, automobile, and mortgage loans have all
been considerably lower than their usual level for this time of
year. Respondents attributed the decline to the attractiveness of
other products such as home equity credit lines, high consumer
indebtedness, and competition from the auto finance companies.
Several banks emphasized the importance of home equity credit, and
suggested its growth relative to more traditional consumer loans has
been exerting pressure to lower rates in the problematic areas.
Banks cited the desire for a more balanced portfolio between fixed
rate consumer and variable rate home equity loans, as well as the
higher profit margins on the fixed rate category as reasons
underlying this pressure. Most surveyed banks indicated that they
have begun to offer lower rates on several types of consumer credit
or plan to do so in the near future. In addition, most of the banks
are in the process of increasing advertising and marketing efforts
to current and prospective bank customers.