December 6, 1989
Developments have varied among sectors of the Second District economy since the last report with no clear sign of overall deterioration or improvement. Department store sales were generally on plan and the pace of office leasing was good. Demand for new homes remained mixed, however, and purchasing managers in Buffalo and Rochester noted some flattening of new orders and overall business conditions. Senior officers at small and midsized banks reported demand for home mortgages slowed over the year.
Consumer Spending
District retailers reported over-the-year sales gains during October
which ranged from 1.4 percent to 11.6 percent. These results were on
or slightly above plan though a couple of respondents described
their sales as somewhat disappointing. Sales during the first half
of November were generally on target and retailers are cautiously
optimistic about the month as a whole. Women's apparel and junior
sportswear continued to be the strongest selling items though
unseasonably warm weather was blamed for slower-than-usual sales of
winter apparel. Jewelry and cosmetics also sold well but sales of
furniture and home furnishings remained sluggish.
The current level of inventories was characterized as manageable by most department store contacts though one retailer reported stocks above desired levels. In addition, some District stores that are subsidiaries of financially-strapped companies are reportedly somewhat understocked because of suppliers' concerns about being paid. Regarding the near-tern outlook, liquidation of the 124-year old B. Altman's chain is producing uncertainty among some District retailers because of the possibility of substantial price-cutting during the current holiday season.
Residential Construction and Real Estate
Demand for new homes in the District remains mixed. In some upstate
New York areas where activity was already strong, further recent
gains are attributed to lower mortgage rates and more realistic
pricing of homes for resale. Much of the New York metropolitan area
continues to report little or no improvement in buyer interest,
however; despite the general slack, a few developers have undertaken
projects they consider sufficiently attractive to elicit a favorable
response. For example, a 24-story condominium apartment house it,
going up on New York City's Central Park West where sites for new
buildings are virtually nonexistent. Offering many highly sought
after features of pre-war structures and unobstructed views of the
park and the city's skyline, 21 of 38 units have been sold for
September 1990 occupancy in the last three months although prices
reportedly range from $900,000 to $6 million.
The pace of office leasing has been good in much of the District but with the recent completion of substantial amounts of new space, vacancy rates have generally held steady or edged higher. Moreover, some New York City brokerage firms recently announced further staff reductions in their continuing cost-cutting efforts. These moves could throw additional office space on the downtown Manhattan market, where vacancy rates have already risen due to earlier restructuring by financial firms, even though no new buildings are currently planned there.
Other Reports on Business Activity
October surveys of purchasing managers in Buffalo and Rochester
indicate some flattening out in general business conditions, orders
and production with an increased number of firms noting "no change"
in these categories. In addition, in both surveys, deteriorating
conditions were reported by at least as many firms as reported an
improvement. Substantially fewer purchasing managers reported higher
input prices in October. Concerning the outlook, the Rochester
survey showed a large increase in the percentage of respondents
expecting a deterioration in business conditions over the next three
months.
October unemployment rates of 4.7 percent and 5.1 percent in New York and New Jersey, respectively, were again below the national average. However, October was the first month in three years that New Jersey's rate was above 5 percent and the unemployment outlook for the District is uncertain. In the wake of relatively weak investor volume and a slowdown in new issues and merger and acquisition activity, several brokerage firms recently announced plans for additional cutbacks totaling some 1200 employees. Some observers expect this number to climb even higher as more restructuring occurs in the securities industry. Further layoffs are also occurring at some auto parts manufacturers as a result of sluggish demand for cars. On the other hand, while demand for autos is slow, interest in new minivans is reportedly strong enough to be boosting employment at minivan parts and assembly plants in the District. Moreover, the House of Representatives voted for the production of 18 more F-14 fighter planes, which could maintain employment levels on Long Island.
Financial Developments
Most senior officers surveyed at small and midsized banks in the
Second District report that demand for home mortgages has declined
somewhat over the past year. The reported depth of the decline
varied considerably, however, ranging from virtually no change to
decidedly lower. All respondents stated that their mortgage activity
is heavily concentrated in either fixed or adjustable rate loans; a
few banks offer only one or the other type of financing. A majority
of the banks reported greater demand for fixed rather than
adjustable rate mortgages which may be due to declines on average in
fixed rates while adjustable rates have increased. Responses were
mixed regarding the current strength of the bankers' local
residential real estate market. One officer noted that while overall
demand was slow, certain pockets in highly desirable areas were
still doing well. Several respondents cited a seasonal slowdown and
recessionary fears as causes of the current downturn. Most bankers
stated that they are aggressively marketing mortgages at the present
time but only one-quarter are currently offering concessionary
first-year rates on adjustable rate mortgages. Despite a slight
increase in national delinquency rates, fewer than half of the
respondents expressed any concern about delinquencies.