Beige Book Report: New York
December 1, 1987
Economic activity in the Second District varied among sectors in recent weeks. In moat areas general business conditions improved somewhat further, and office leasing was strong. However, conditions in residential construction and retail sales were mixed, and in the wake of the stock market crash, concern has developed regarding the outlook for the New York City economy. Small and mid-sized banks report that demand for consumer installment loans remains strong.
Consumer Spending
The pattern of retail sales in the District has been mixed in recent
weeks. While, in general, respondents reported that sales for the
month of October were on or above plan, their experience following
the mid-month stock market crash varied. Some retailers had an
initial falloff in sales, particularly for big-ticket items, which
was followed by a rebound, while others noted continued weakening
since the crash. Still others have thus far seen no effect on their
sales. Reflecting this variation in sales, descriptions of inventory
levels ranged from "on target" to "4 to 5 percent above plan".
Over-the-year sales gains in October generally ranged from 9 to 13 percent although one retailer reported a much smaller increase at his suburban stores in the District. Soft goods such as apparel and accessories, shoes, and jewelry were mentioned as selling well, but some higher priced items like furniture, furs, and rugs moved slowly.
District retailers are not overly optimistic concerning the upcoming holiday season. Several respondents have adopted a wait-and-see attitude in response to what one termed "the new conservatism among consumers".
Business Activity
Some further improvement occurred in much of the District's economy
since the last meeting. However, in the wake of the stock market
crash, considerable concern has developed regarding the outlook for
the New York city economy where several investment firms have
already announced staff reductions. The Rochester survey of
purchasing managers reported an increase in the number of firms with
improved general business conditions, and no respondents reported a
worsening. Also, nearly 90 percent of the survey respondents stated
that their company's plans for the future have not been affected by
recent events in the stock market. Those reporting that the stock
decline has affected plans indicated that it did so because of the
effect on their company's ability to raise capital and not because
of any change in business conditions. Meanwhile, 85 percent of those
surveyed in Buffalo reported better or stable conditions.
Some planned projects, most of them announced since the stock market crash, point to a positive impact on the District's economy. After several months' search, two large banks have chosen Buffalo as the location for their new facilities. Goldome announced that it will buy the former Bethlehem Steel regional headquarters building for use as its new telecommunications center, while Marine Midland will construct a 840 million back-office facility there. In addition, three manufacturing firms also announced plans to expand in the Buffalo area. Groundbreaking ceremonies recently took place in the Syracuse area for the regional distribution center of a package handling company which will provide several hundred new jobs upon completion. Meanwhile, in northern New Jersey, Hudson County's first shopping mall opened at Newport City, the multibillion dollar residential and commercial development under construction there. Some 2500 jobs are expected to be created at the mall with first preference going to county residents.
Construction and Real Estate
Conditions in the District's residential construction industry
remain mixed. In much of the New York metropolitan area the pace is
described as slow with few people out looking for new homes and a
large inventory of existing homes available. Moreover, in some of
these areas where the high prices of homes had already been cited as
a major deterrent, the drop in the stock market has reportedly had a
further depressing effect on potential homebuyers. Away from the New
York metropolitan area, however, homebuilders are still quite active
although some slackening is anticipated as the holiday season and
winter weather approach.
Office leasing activity continued strong in much of the District though some slowing occurred in the downtown Manhattan market. Analysts attributed this slowdown to employment cutbacks at some brokerage firms and plans announced by others to review their staffing needs. Concern over the additional impact that the stock market crash will have on the securities and financial services industries added to the cautious tone in the downtown market. Expansion in these industries has been a major source of demand for new office space in recent years.
Financial Developments
Senior officers at small and mid-sized banks in the Second District
stated that demand for consumer installment loans has remained
strong since the stock market crash, and applications for mortgages
and home equity loans have not fallen appreciably. One banker noted
that the real estate market in her area has weakened since the
spring, but she did not see a pronounced reduction in mortgage
activity following the crash. Most officers also reported no unusual
deposit inflows as a result of the steep decline in the stock
market, contrary to the widespread expectation that nervous
investors would rush to deposit their funds in federally insured
accounts. Most banks in the survey have cut their interest rates in
recent weeks, though some bankers voiced doubts that further
declines would occur. Because of the steady demand for consumer
loans, bankers generally anticipated that the crash would cause only
a mild reduction, if any, in their lending activity through the
first half of 1988.