November 30, 1988
The rate of expansion in the Second District's economy may have slowed somewhat since the last report. The latest purchasing managers' surveys continue to show most firms reporting improved to stable conditions, but a smaller share than in recent reports, and some department stores have recently experienced an over-the-year decline in sales. The pace of homebuilding remains slow for the most part, but a pickup occurred in commercial real estate activity. Commercial and industrial loan demand at small and medium-sized banks in the District has been slow to moderate, though a few loan officers reported some strength.
Consumer Spending
The pattern of sales at District retail stores was quite varied in
recent weeks. Two retail chains reported that October sales declined
from a year earlier although some improvement occurred as the month
progressed. On the other hand, one chain had a large over-the-year
gain which was attributed primarily to increased promotionals this
year.
Reflecting the differing sales results, reactions were also mixed concerning the level of inventories and the ability to meet sales targets. Those retailers with sales below plan and excessive inventories intend somewhat more aggressive promotionals in the weeks ahead, while others anticipate no change in strategy.
Most of our contacts reported some pickup in sales of women's apparel from the slow pace earlier this year, and some noted that unusually cool weather spurted outerwear sales as well. With regard to the outlook, retailers are moderately optimistic about the upcoming holiday season but generally do not anticipate large over- the-year gains.
Business Activity
Recent purchasing managers' reports suggest some slowing of the
District's economic expansion occurred in recent weeks. In both
Buffalo and Rochester the percentage of purchasing managers
reporting improved business conditions declined, and the percentage
reporting a worsening increased. Nonetheless, by far the majority of
firms-90 percent in Rochester and 85 percent in Buffalo-continue to
report stable to improved conditions, and those in the Rochester
survey anticipated little change over the next three months.
Unemployment rates in the District remain below the national average with October readings of 4.2 percent in New York and 3.9 percent in New Jersey. As was true nationally, rates in the District have fluctuated within a fairly narrow range the past several months. The October-to-October rate decline in New York was virtually the same as the national average, but in New Jersey where last October's rate was already very low, the year-to-year decrease was slight.
Few new major projects were announced in the District since the last report. However, western New York was buoyed by some recent developments. Two "upscale" New York City department stores announced plans to make their Buffalo area debut in a new shopping mall now under construction there-further indication of Buffalo's comeback from its earlier loss of several manufacturing firms. In addition, a major supermarket chain plans to open three large superstores in Buffalo and Niagara Falls.
Residential Construction and Real Estate
The pace of homebuilding in the Second District remains slow for the
most part though some upstate New York communities continue to
report strength. In the Fort Drum area, for example, builders are
busy on both military and nonmilitary housing and activity around
Buffalo exceeds the year-earlier level. In most of the District,
however, activity has been subdued, with home prices remaining high
and the resale market slow as a result. Several plans for affordable
and retirement housing have recently been unveiled, though, and
these could help reactivate the housing market to some extent next
spring.
A pickup occurred in District commercial real estate activity recently. During October the midtown Manhattan market experienced its highest level of leasing activity since July 1986, and downtown Manhattan also registered more strength than had been seen since the stock market crash. The pace of leasing activity has also been moderate to good in other parts of the District. However, vacancy rates have shown little change because of a sizable supply of office space coming on line in many areas.
Financial Developments
Commercial and industrial loan demand at small and medium-sized
banks in the Second District is currently reported as slow to
moderate, though a few loan officers report some strength. Those who
have witnessed a slackening attribute it to seasonal factors and to
concern about the economy, particularly the budget and trade
deficits. One officer stated that in an environment of uncertainty,
borrowers are reluctant to take on additional debt. Most respondents
said that the increased level of interest rates in recent months has
had little effect on business loan demand. The bankers anticipate
that conditions at their banks will hold constant into early next
year. Business loan portfolios at these banks currently consist
almost solely of short- to intermediate-term loans, the definition
of which varies among respondents, but is generally less than five
years. Recent changes in the mix of short- versus long-term loans
favored the former. All of the respondents stated that their banks
had not purchased any of the merger and acquisition loans which are
now on the secondary market. One officer commented that the pricing
of these loans was not attractive enough to entice smaller banks to
learn about the unfamiliar new packages.