October 23, 1991
Developments in the District economy have remained mixed in recent weeks. September sales at District department stores were generally sluggish and homebuilders continue to report only subdued interest in new homes. Office leasing activity has been rather slow and vacancy rates remain high in many areas. On the other hand, September unemployment rates fell in New Jersey and New York following a rise in August while the survey of Buffalo purchasing managers showed a doubling of firms with increased new orders. Most senior loan officers surveyed at small and midsized banks reported their willingness to lend is unchanged from three months earlier.
Consumer Spending
September sales at District department stores were generally
sluggish and, for the most part, below plan. One chain that did meet
its target attributed that success to heavy promotional activity and
a boost from Canadian shoppers in upstate New York. Over-the-year
changes at District stores ranged from -5 percent to +2 percent
during September. Some firms cited strength in sales of furniture
and home furnishings with weakness in apparel while others noted the
opposite pattern. Despite slower-than-targeted sales at many stores,
inventories were reported to be in good shape due primarily to
careful monitoring and some extra promotionals.
Showing optimism about the longer run outlook for consumer spending in the District, a leading French retailer just opened a large department store in midtown Manhattan and several national chains began operations in a rebuilt shopping mall in New Jersey. In Westchester County a leading developer is expanding a shopping mall and in the Buffalo area, two retail chains which are new to the region recently opened stores as part of an expansion of a two-year old mall.
Residential Construction and Real Estate
District homebuilders continue to report only subdued interest in
new homes and now expect 1991 housing starts in many areas to total
less than the low levels of 1990. Several respondents consented on
consumer reluctance to purchase new homes in the face of widespread
layoffs and corporate restructurings. In addition, while the resale
market shows some improvement as the result of lower prices and
falling mortgage rates, the inventory of existing homes remains high
in several parts of the District, further weakening the demand for
new homes. In much of the District homebuilding activity is also
reportedly impeded by a shortage of credit for acquisition and
construction loans.
Office leasing activity has been rather sluggish in recent weeks and vacancy rates remain high in many parts of the District. Asking rental rates continue to decline due to the abundance of space and various other concessions are also being offered to attract new tenants. Despite the recent slow pace of leasing activity, the primary office vacancy rate in midtown Manhattan edged lower as virtually no new space was added. The vacancy rate in downtown Manhattan rose, however.
Other Business Activity
In September, District unemployment rates continued their seesaw
pattern of the last several months. The seasonally adjusted
unemployment rate fell 0.7 percentage point in New York and 0.5
percentage point in New Jersey after rising 0.4 percentage point in
both states during August. New York's rate is now 6.8 percent and
New Jersey's 6.2 percent. Nonfarm employment remains below year-
earlier levels, and in recent weeks American Express, Union Carbide
and Allied-Signal announced plans to lay off several thousand
employees, at least some of whom will be in the Second District.
Meanwhile economic development officials from New York State and
City, New Jersey, and Connecticut signed an agreement to work
together towards keeping firms in the region and attracting new
ones.
The September survey of Buffalo purchasing managers showed a doubling of firms with increased new orders to 42 percent as well as a substantial drop in those with a decreased orders. The August survey of purchasing managers in Rochester showed a rise in the percentage of firms anticipating a deterioration of business conditions over the next three months, though by far the majority continue to expect the same or improved conditions.
Financial Developments
Most midsized banks in the Second District reported that their
willingness to lend remains unchanged from three months ago. These
officers also reported a decrease in the overall demand for loans,
especially for consumer loans. Demand appears somewhat stronger for
real estate loans, where roughly equal numbers reported increased
and lessened demand. Of the senior officers reporting a change in
loan delinquencies from three months ago, most reported a rise in
the delinquency rate for total loans, and for consumer loans in
particular.
Nearly all surveyed banks are now charging lower loan rates than they were three months ago. Three fourths reported unchanged credit standards, with the remaining quarter having tightened somewhat. Tightening measures included lower loan-to-value ratios, more stringent collateral requirements, and more comprehensive analyses of applicants' credit histories.