January 25, 1989
Developments in the Second District economy in recent weeks have varied among sectors, in part reflecting seasonal influences. Most retailers described Christmas holiday sales as on or above plan and a pickup in office leasing has occurred. Homebuilding is seasonally slow and in some overbuilt areas, developers are offering concessions. While the percentage of purchasing managers reporting improved business conditions showed about a normal seasonal decline, the proportion indicating worsening conditions was somewhat higher than usual. Small- and medium-sized banks have recently increased interest rates charged on their loans.
Consumer Spending
Most retailers contacted in the District described sales during the
1988 Christmas season as on or above plan. A major exception was a
chain whose sales had been below year-earlier levels for several
consecutive months. While sales results generally were as targeted,
most stores reported relatively moderate over-the-year gains, given
the extra shopping days this year. Increases mainly ranged from 2-10
percent.
Items in strong demand among holiday shoppers were electronic games, video cameras and recorders, appliances and men's clothing. Interest in women s apparel also improved, though the extent of the improvement varied. Inventory levels at the end of December also were mixed. One chain with lower than targeted inventories reported lost sales because of its having understocked several popular items. At the other extreme were two retailers with inventories well above plan, who expect to discount heavily throughout January in order to clear the remaining seasonal goods from their shelves.
Business Activity
The percentage of purchasing managers in western New York reporting
improved business conditions showed roughly its usual decline for
this time of year, but the proportion with worsened conditions was
somewhat higher than usual. Among recent developments in the
District, Grumman announced that it will eliminate 2500 jobs
beginning in January as a result of the Pentagon's cancellation of a
bomber project. Elsewhere, a recent groundbreaking gives further
evidence of a turnaround in the South Bronx. A $100 million retail
and office project is now underway on a long-vacant tract; it is to
include a full service supermarket, the first new movie theater in
the area in 15 years, a shopping mall, and a new office building.
Some 1500 permanent jobs are expected to be created.
With regard to the impact on the District of certain national developments, the newly proposed changes and closings at U. S. military bases are not expected to have an adverse effect on the District. Personnel from the Brooklyn Naval Station, which is slated for closing, will be moved to a new Staten Island facility. In addition, a New York State official recently stated that the newly signed U.S.-Canada Free Trade Agreement should be of benefit to much of western and northern New York. Finally, governors in each of the three District states reported substantial shortfalls in revenues and New York and New Jersey have imposed hiring freezes.
Residential Construction and Real Estate
Homebuilding activity in the District is seasonally slow, and in
those parts of the New York metropolitan area where a buyer's market
exists, developers are offering concessions. In Manhattan, however,
where a rush of new apartment construction had begun prior to a
November 1985 deadline to receive certain subsidies, most units have
reportedly been sold without a glut developing as many had feared.
Moderate-priced housing remains in demand in much of the District.
A pickup in office leasing has occurred in recent weeks. In downtown Manhattan a major brokerage firm leased 1.1 million square feet of space in a building at the World Trade Center which had been mostly vacant for a long time. Buildings going up on the west side of midtown Manhattan continue eliciting interest with the result that leasing there in 1988 was second only to 1987's record amount. Marine Midland Bank unveiled plans for a new office building in downtown Buffalo to house its backoffice operations, and work is also to begin soon on the second phase of New York City's conversion of the Brooklyn Army Terminal into industrial space for small manufacturers. The first phase, opened in late 1987, is 80 percent leased and negotiations for the remainder are underway.
Financial Developments
In response to the rise in the prime and other market rates, small-
and medium-sized banks in the Second District survey have recently
increased interest rates charged on their loans. Some increases were
automatic as most commercial loans and many mortgage and consumer
installment loans have floating rates tied to the prime. However,
rates on fixed-rate loans have been raised as well. Most officers
said their banks had not felt competitive pressures to resist the
recent round of interest rate hikes because other local banks also
raised their rates. Bankers reported that competition to offer
depositors the most attractive rates on 3- and 6-month CDs has been
keen. However, none of the surveyed banks have increased rates
offered on savings accounts. Regarding the outlook, nearly all
respondents expected additional modest increases in interest rates
for the first half of 1989, though several thought rates nay ease
slightly by mid-year. When asked to judge the strength of their
local economy, bankers' responses were mixed. About half described
their local economy as moderately strong but with some weak sectors,
such as real estate. The rest characterized their local economy as
quite healthy.