January 22, 1992
Developments in the Second District economy since the last report were generally on the soft side. During November retail contacts were split between those with sales above and below plan while December results were generally below target. Residential construction activity remains low and office leasing activity slowed. District unemployment rates rose in December for the third consecutive month following a seesaw pattern during most of the year. Most senior loan officers at small and midsized banks reported no change in their willingness to lend.
Consumer Sector
District retail contacts had mixed results during November,
splitting almost evenly between those with sales above and those
with sales below plan. While December results were more uniformly
below target, several retailers expressed pleasure that sales proved
better than the dire media forecasts. The sales environment was very
competitive and marked by considerable price-cutting which began
very early in the holiday season. Despite relatively lean
inventories, retailers were heavily promotional in an attempt to
overcome anticipated consumer caution. Over-the-year sales changes
at department stores ranged from -4 percent to +5 percent in
November and from flat to +2 percent in December. An annual survey
conducted by the Retail Council of New York State covering some 200
stores across the state found sales volume during the Christmas
season to be generally unchanged from a year earlier.
Items which sold relatively well included staples such as men's and women's sweaters, gloves, and outerwear as well as dresses, cosmetics and certain toys. Sales of big ticket items varied among respondents. Due in large part to a substantial pickup in sales during the two weeks surrounding Christmas, inventories were reported at or somewhat below targeted levels.
Residential Construction and Real Estate
Residential construction activity remains slow in the District due
to both the season and generally sluggish demand. The high inventory
of homes available in the resale market and consumer uncertainty
about the economic outlook continue to be cited as major factors.
Reportedly, much of the homebuying which is currently taking place
is by first-time buyers and others in need of "affordable", lower-
priced units. Two yet-to be-constructed communities in New Jersey
and New York were recent sellouts because of their relatively low
prices and attractive financing. Among other housing construction
scheduled are an $18 million building in the Bronx to house homeless
adults and, in all five boroughs of New York City, new housing for
working and middle-class families under a recent $76 million federal
grant.
Office leasing activity slowed somewhat since the last report. Midtown Manhattan witnessed its second largest transaction or the year, but a sizable amount of vacant space was marketed and the primary vacancy rate rose. In downtown Manhattan, where no new construction is underway and several well-known buildings are undergoing extensive capital improvement, the vacancy rate declined for the second consecutive month.
Other Business Activity
District unemployment rates rose in December for the third
consecutive month following a seesaw pattern during most of the
year. New York's rate edged up to 8.1 percent from 8.0 percent in
November while New Jersey's rate increased to 7.4 percent from 7.1
percent. Since the last report, plans for some sizable cutbacks have
been announced which are likely to have a downward impact on local
employment. Nynex, the local telephone company in New York state and
New England, will reduce its workforce over the next two years by
almost 10,000 and Xerox, which has several locations in the
District, will eliminate 2500 white-collar positions by the middle
of this year. Moreover, in the semiannual survey of the
Manufacturers Association of Central New York, nearly 25 percent of
respondents in January said they plan to cut employment over the
next three months, up from 15 percent last July.
On a more positive note, Ford and GM recently announced plans to invest a total of $350 million in their western New York plants over the next two years. Most of the money will be used for new machinery and retooling. In addition, a Dallas-based firm plans to move a manufacturing operation from the South to New York State.
The December survey of Buffalo purchasing managers showed a doubling of the percentage of firms with fewer new orders and a substantial increase in the percentage with lower production. While some of this slowdown apparently is a seasonal pattern, the extent of it is somewhat greater than in December 1990. The November survey of purchasing managers in Rochester, however, showed a decline in the percentage anticipating a deterioration of business conditions over the next quarter.
Financial Developments
Most senior loan officers surveyed at small and midsized banks in
the Second District reported that their willingness to lend remains
unchanged from three months ago. Credit standards at most banks
surveyed remain the same, though a few banks reported stricter
standards for consumer loans. Most respondents stated that overall
loan demand was stable with some variation across categories. Nearly
all loan officers reported charging lower rates than three months
ago, reflecting decreases in the prime rate. These lower rates have
brought about increased demand for mortgage refinancings, even
though the demand for new residential mortgages and construction
loans remains weak. Those respondents noting a decrease in overall
loan demand are using advertising campaigns and aggressive rate-cutting policies as a way of attracting new loans. The majority of
banks surveyed report an increase in delinquency rates on all types
of loans, forcing some to restructure existing loans.