October 31, 1990
Developments in the Second District economy show continued weakness since the last report. Retail sales contacts report a year-over-year decline for the second consecutive month. Residential construction remains weak in much of the District. The market for office space, while soft, appears to have improved slightly. Unemployment rates rose during September, but are below the national average. Several major New York City employers plan substantial layoffs. Respondents at small and medium-sized banks were equally divided between those reporting credit tightening and those whose willingness to extend credit has not changed.
Consumer Spending
For the second consecutive month, all of our retail contacts
reported year-over-year sales declines in September. They attributed
the fall in sales to concerns over the economy, uncertainty caused
by the possibility of war and rising oil prices, and unseasonably
warm September weather. In addition, particularly strong sales in
September 1989 exaggerated the year-over-year decline.
Changes in comparable store sales—which exclude the effect of stores opened during the year—ranged from -7.2 percent to -14.0 percent between September 1989 and September 1990. The weakness in sales was broadly spread across most categories of goods, with home furnishings and childrenswear sales showing particularly sharp declines. Sales of women's higher-priced apparel remained strong, however. Reports on inventories were mixed, with some stores reporting above-plan inventories and modest inventory cuts while others reported inventories slightly below plan.
Residential Construction and Real Estate
Residential construction in the Second District remains very weak.
Downstate New York and Northern New Jersey homebuilders characterize
credit as extremely tight, with reports of no financing available
for speculative building or land acquisition and many existing loan
commitments being renegotiated or canceled. There continues to be a
glut of housing inventory—some of it unrealistically priced—on
the market. Although new construction in Western New York appears
stronger than in the rest of the District, it too has begun to
soften.
Three consecutive months of strong leasing activity caused midtown Manhattan's primary vacancy rate to fall for the first time this year. With only 700,000 square feet of additional space scheduled for completion in 1990, the midtown vacancy rate is expected to decline further over the next few months. Downtown Manhattan vacancy rates remained roughly stable as average asking rental rates declined. The market for office space elsewhere in the New York City metropolitan area was soft but generally stable.
Other Business Activity
Unemployment rates in the Second District rose significantly during
September, but remain below the national average. New York State's
unemployment rate rose from 5.0 percent in August to 5.5 percent in
September, while New Jersey's rate rose from 4.8 percent to 5.2
percent over the same period.
Many recent job losses have been concentrated in the New York City metropolitan area. Last month, Pan Am cut 1,200 area workers and Chase Manhattan announced the layoff of 5,000 predominantly local employees. This month, Saks announced that it would cut approximately 350 employees from its New York corporate headquarters. On the other hand, in Central New York, more than 3,000 jobs were created with the opening of Syracuse's Carousel Mall and an additional 340 positions were generated by Union Carbide's decision to consolidate its national technical operations near Albany.
Financial Developments
Senior officers at small and medium-sized banks in the Second
District survey generally characterized the local economy as
sluggish and weakening over the last three months. Roughly half of
the respondents were generally less willing to lend as compared to
three months ago, while the remainder said their willingness to
extend credit had not changed. In contrast, the majority of lenders
reported no change in their willingness to extend credit for
consumer installment and home equity loans. For those banks which
have tightened credit standards, some are more strictly enforcing
existing rules while others are requiring lower maximum loan-to-value ratios and increased collateral. A weak local economy and a
poor real estate market were commonly cited reasons for raising loan
qualifications. Other bankers stated that they were simply
maintaining their conservative lending policies. For commercial real
estate loans, respondents were split between those reporting lower
loan demand as compared to three months ago and those reporting
unchanged demand; the weakness was most pronounced for new
construction loans. Although several bankers predicted a decline in
real estate loan demand over the next six months, the majority
anticipated that demand will remain stable. Business loan demand was
characterized as soft or weaker than three months ago.