March 13, 1991
Economic activity in the Third District remained sluggish in February, but there were some spotty indications of improvement. Although manufacturers said the downtrend in that sector continued, they indicated that orders and shipments have been steady in recent weeks, following a year-long decline, and export business was picking up. Realtors reported that sales of both new and existing homes had increased in February. On the negative side, retailers generally were experiencing weak sales, and bankers said overall loan demand remained slack although some noted an increase in lending to middle market companies.
Looking ahead, Third District business contacts generally express guarded optimism. Manufacturers expect an increase in activity over the next six months and they are planning some increases in capital spending. Retailers anticipate sales to pick up with the end of hostilities in the Persian Gulf, but they do not expect strong gains until overall economic activity rebounds. Realtors believe the recent improvement in sales should be sustained as long as mortgage rates do not move up and there is no substantial decline in employment in the region. Bankers, however, believe that loan demand will remain only steady, at best, until there are clear signs of resurgent economic growth.
Manufacturing
Reports from manufacturers in late February indicated that although
industrial activity continued to slow, the downward trend appeared
to be easing. Around half of the firms contacted said business was
running at a steady pace and there were some reports of improvement.
In particular, manufacturing executives indicated that, on balance,
total orders and shipments had been running at a stable rate in
recent weeks after a year-long decline, buoyed by a pickup in export
business. Nevertheless, managers at area plants said they were
continuing to trim employment.
Third District manufacturers apparently see some signs of improvement, and the consensus outlook is optimistic. More than half of the plant managers queried in late February expect business to pick up over the next six months. Although most do not expect the increase in activity to be large enough to require hiring more workers, expectations of improving business conditions are prompting some area firms to schedule increases in capital spending.
Retail
Retailers reported that sales were sluggish in January and February.
Some specialty stores have seen stronger sales recently--notably
women's and children's clothing stores and stores catering to the
do-it-yourself home improvement market; however, nearly all broad-
line stores are experiencing softness.
Store executives said consumers have been very cautious in their spending behavior. While merchants expect some improvement with the end of hostilities in the Persian Gulf they believe that consumers will continue to exercise restraint until the employment situation improves and family incomes pick up. Retailers plan to limit expenditures for merchandise and marketing, and they are stepping up efforts to control expenses.
Finance
Total loan volume outstanding at major banks in the Third District
has dropped since the beginning of the year. Bank lending officers
describe loan demand as slack for most categories of credit, and
they do not foresee a rebound until overall economic conditions
improve.
While some bankers noted an increase in lending to middle market businesses, most said total commercial and industrial loan volume continued to slip. Consumer loan volume was also down, according to Third District bankers. Several noted that outstanding installment credit was declining, especially for auto loans and credit cards. Although bankers said consumer loans usually are paid down at this time of year, some believe the decline in outstandings is greater than can be attributed to the seasonal factor alone.
Real estate loan volume outstanding is down only slightly from the beginning of the year. Bankers noted a recent pickup in new residential mortgages as well as an increase in refinancings. Some also indicated that depository institutions and other lenders were extending maturities on outstanding loans to commercial property owners and developers where the financial condition of the borrower remained sound. However, bankers said that little new permanent financing was being advanced and that practically no funds were being provided for speculative projects.
Real Estate and Construction
Sales of both new and existing homes have increased in recent weeks,
according to realtors. Most of the improvement came in the low- to
mid-priced market, but realtors also noted an increase in inquiries
from potential buyers in the high end of the market. Further
indications of increasing demand are reports from some builders that
it was becoming easier to obtain asking prices for the houses they
build. Realtors expect residential business to show continued
improvement as long as mortgage rates do not move up and the
employment situation does not weaken.
Commercial realtors estimated that office vacancy rates were in a range from the mid-teens to low-twenties in business areas around the Third District, and they expect rates to remain at these levels through the rest of the year. Vacancy rates for retail space were described as high, and some real estate executives said high vacancies at some shopping centers were having a negative impact on sales at stores operating at those locations.
Realtors and executives involved in real estate financing expect construction activity to continue to decline this year. They say refurbishing of older buildings, primarily offices and warehouses, will provide some demand for construction this year and next, but they are concerned that these buildings may be at a competitive disadvantage in attracting tenants due to the large amount of recently built space available.