August 7, 1991
Developments in the District economy have remained mixed in recent weeks. The pace of office leasing picked up in parts of the District and the June surveys of purchasing managers in both Buffalo and Rochester showed some improvement. The unemployment rate declined in New Jersey but rose in New York and further substantial job losses are expected in the banking, airline, and government sectors. Many homebuilders now expect that sales of new homes this year will be at best only slightly improved over the low levels of 1990. June sales at District department stores were below year-ago levels though in some cases these results were on or above plan. Most officers surveyed at small and mid-sized banks reported no change in the ratio of business loans to total credit over the last three months.
Consumer Spending
June sales at District department stores were below year-ago levels
though in some cases these results were on or even above plan. Over-
the-year decreases of from 1.0 to 11.0 percent were attributed to a
recessionary environment and stronger-than-expected May sales due to
unusually warm weather which borrowed from June. Most respondents do
not anticipate much improvement in sales before the fourth quarter
at best.
Sales of big ticket items remained sluggish at most stores though extra promotional activity brought a pickup in furniture sales in one case. Items that sold best were various types of men's and women's apparel. Despite June's slow sales, most respondents reported that inventories were right on target when July summer clearance sales began.
Residential Construction and Real Estate
After a flurry of home buying activity during the spring, sales have
become more subdued. Moreover, since much of the earlier buying was
in the resale market, many homebuilders now expect that sales of new
homes this year will be only slightly to somewhat improved over the
low levels of 1990. On the cost side, builders report that lumber
prices have recently risen, and a shortage of credit for acquisition
and construction loans continues in much of the District. One large
builder reportedly faces bankruptcy because of nonrenewal of a loan
for a sizable development he is constructing.
The pace of office leasing picked up in parts of the District during recent weeks though vacancy rates remain high in many areas. Leasing in midtown Manhattan was the strongest in several months and no major blocks of new space were marketed. As a result, the primary vacancy rate declined for the first time since last fall after several months of no change. While the primary vacancy rate in downtown Manhattan was unchanged in June, this followed declines in April and May. Office leasing activity has also reportedly improved in northern New Jersey, but in some other parts of the District such as Buffalo and Fairfield County, Connecticut, vacancy rates have been rising, largely as a result of corporate consolidations and moves.
Other Business Activity
The June surveys of purchasing managers in both Buffalo and
Rochester showed some improvement. In Buffalo the percentage of
surveyed firms with an increase in new orders rose to 27 percent
from 4 percent in May while the percentage with greater production
rose to 31 percent from 25 percent in May. More than 30 percent of
surveyed firms in Rochester reported improved business conditions,
up from 19 percent in May and 14 percent expected a worsening of
business conditions over the next three months, down from 26 percent
in May.
The June unemployment rate declined in New Jersey to 6.6 percent from 6.8 percent (seasonally adjusted) but rose in New York from 7.4 percent to 7.7 percent. New York's rate has surpassed the national average for the last three months while New Jersey's has been somewhat below. The District's employment outlook is dimmed by several recent announcements. The planned merger of Chemical Banking and Manufacturers Hanover is expected to reduce employment by some 6,200, with up to 70 branch closings, while further restructuring at Citicorp could result in a job loss of another 10,000. In addition, the proposed sale of much of Pan Am to Delta is expected to leave some 10,000 more District workers without jobs. Government layoffs have also begun in New York and New Jersey and thousands of additional jobs may be eliminated.
Financial Developments
Most senior officers surveyed at small and mid-sized banks in the
Second District reported that their ratio of business loans to total
credit extended has not changed over the last three months. The few
respondents noting a change were evenly divided as to the direction.
A majority of the surveyed banks have tightened their credit standards over the last three months. Most loan officers also stated that the credit quality of their applicants has declined. Nevertheless, they say their willingness to extend business loans to qualified borrowers has not changed.
The planned merger of Chemical Banking and Manufacturers Hanover would realign the banking market of the District. Their combined assets of $135.5 billion would constitute the second largest banking company in the nation behind Citicorp with $216.9 billion in assets. Their combined deposits would constitute 11.1 percent of the New York market behind Citicorp's 12.5 percent share.