September 20, 1989
District activity continues to be basically mixed but with some recent signs of strengthening. Retail contacts reported over-the-year sales gains during July and August that, for the most part, were on or above targeted levels. Unemployment rates in the District have bounced around in recent months, but remain slightly below the national average. Buffalo purchasing managers report improved business conditions. In contrast, demand for new housing continued mixed, with some areas noting price declines, and office leasing activity slowed somewhat in its usual summer pattern. Most small- and medium-sized banks stated that they have not lowered rates on consumer loans since the latest decrease in the prime rate.
Consumer Spending
District retail contracts reported a wide range of over-the-year
sales gains during July and August, but they were, for the most
part, on or above targeted levels. July gains ranged between 2.5
percent and 13.0 percent, while the August range was even wider:
from 0.5 percent to 19.0 percent. Most respondents described their
July results as on or above plan though a couple found them to be
disappointing. Two chains characterized their August sales as "well
above plan", and a third posted higher-than-targeted results for the
first time in several months. Women's apparel remained in strong
demand at all stores during both July and August, and in August
back-to-school departments also fared well. Reports on the demand
for items such as men's clothing, furniture, and home furnishings
were mixed, however.
Inventories at the end of August were generally described as satisfactory. One retailer continued to have stocks above desired levels, but greatly reduced from the previous two months, while another reported an actual shortage of fall merchandise which he expected to be rectified in September.
Residential Construction and Real Estate
Demand for new housing in the District remained mixed in recent
weeks. An oversupply of homes in the resale market continues to be
cited as a major deterrent to new construction activity in downstate
New York and New Jersey where price cutting by both homeowners and
developers has been noted lately. Some developers on Long Island,
for example, have reportedly been reducing home prices by more than
10 percent in order to reduce swollen inventories and pare carrying
costs. However, in several upstate communities where prices continue
to rise, homebuilders are quite busy and report an upturn in demand
as a result of low mortgage rates and an end to exceptionally rainy
weather. Observers in these communities anticipate that construction
activity in 1989 will come close to the high level attained in 1988.
Office leasing activity slowed somewhat since the last report in its usual summer patters. Several new buildings were completed in midtown Manhattan which had tenant commitments for less than half their space, while in downtown Manhattan a sizable amount of existing prime office space was also placed on the market. As a result, the vacancy rate for prime space has increased somewhat in both these areas, though the rates remain below the national average. Office vacancy rates in most other District areas showed little change in recent weeks.
Other Reports on Business Activity
District unemployment rates have bounced around in recent months,
but remain slightly below the national average with August readings
of 5.0 percent in New York and 4.5 percent in New Jersey. In
contrast to the national pattern of an over-the-year decline,
though, unemployment rates in both New York and New Jersey have
risen since last year.
The August survey of Buffalo purchasing managers reversed the July pattern, showing a sharp rise in firms with improved orders and production and a decline in those experiencing a worsening. August data for Rochester are not yet available but in July, 90 percent of surveyed managers there anticipated stable to improved conditions over the next three months after some deterioration from June to July.
Eastman Kodak recently announced that it will lay off an additional 4500 workers this year, but it did not specify how many would be affected at its Rochester, New York headquarters. On Long Island a final decision has not yet been made public with regard to the Pentagon's plan to cancel Navy aircraft contracts at the Gruman plant. Among other recent developments which could have an adverse impact on the District's economy, two of New York's oldest retail chains—B. Altman and Bonwit Teller—filed for Chapter 11 bankruptcy protection as a result of their parent company's financial difficulties, and a large furniture chain was unable to meet its interest payments and began discussing debt restructuring with its lenders.
Financial Developments
Most senior officers contacted at small- and medium-sized banks in
the Second District stated that they have not lowered their raises
on consumer loans since the decrease in the prime rate on July 31
nor do they plan to although many loan rates have been reduced. The
majority of respondents noted that consumer loan demand has fallen
off since this time last year. Those who have not experienced a
decline in demand for consumer loans ascribed their success to
aggressive marketing campaigns. Auto loan demand was perceived as
very weak compared to this time last year due to a slowing of auto
sales and to increases in dealer financing incentives. Respondents
also stated that delinquency rates on consumer loans were slightly
higher than a year ago. One banker said that their collection
department has been expending increasing effort in order to keep
delinquency rates from rising above acceptable levels. Most
respondents believed that consumer loan demand will remain soft in
the near future due to a weakening economy and two bankers said that
consumers were far too extended to incur more debt. Some respondents
indicated that if demand falls further, they may be forced to lower
rates.