June 17, 1992
Reports on recent developments in the Second District continue to be basically mixed, but marginally more negative in tone than in recent months. On the plus side, office leasing activity in Manhattan continued at a moderate pace and a survey of District manufacturing firms showed business conditions have improved significantly since last November. In contrast, however, District homebuilders noted a recent slackening of activity and department store contacts reported some slowing in sales growth. Labor market developments were also unfavorable, with state unemployment rates rising in May and with layoffs of over 7,000 retail employees expected by summer's end. Senior loan officers surveyed at small and midsized District banks indicated no change in their willingness to lend from two months earlier.
Residential Construction and Real Estate
Homebuilders in upstate New York and northern New Jersey generally
report a recent slackening of activity after the rise in sales
earlier this year, although sales remain above last year's levels. A
builders association projects new single family homes in western New
York will total between 2,300 and 2,400 units this year, above last
year's level of 2,100, but well below the more than 2,800 homes
built in both 1988 and 1989.
Manhattan office leasing activity has continued to rise, but growing inventories of available space have led to increases in overall vacancy rates. In the market for sublet space in Midtown Manhattan, however, declines in asking rental rates have so increased leasing activity that the inventory of available space has finally begun to decline.
Consumer Spending
Second District department stores reported that sales growth was
slightly stronger in April than in May. Although the range of year-
to-year sales growth was quite similar for both months -- flat to
+15 percent in April as compared to -3 percent to +15 percent in May
-- more stores were clustered near the bottom of the range during
the most recent period. Easter boosted sales of children's clothing
in April, while unusually cool weather slowed apparel sales the
following month. All contacts reported inventories on plan.
Fifteen New York metropolitan area department stores are scheduled to close by summer's end, resulting in the loss of 7,200 jobs. Several of the stores are the last remaining retail anchors in older downtown areas; the Fordham Road section of the Bronx and downtown Newark and New Rochelle are expected to be particularly hard hit. On a more positive note, a major New Jersey shopping mall has announced plans for expansion and renovation, including three new luxury department stores to replace two anchors which had previously closed.
Business Activity
A May survey of 15 Second District manufacturing firms suggests that
local business conditions are now significantly more positive than
they were when the same firms were surveyed last November. Ten of
the firms anticipate sales will increase over the next six months,
with seven of the ten having recently become more optimistic. Only
three firms are anticipating layoffs, as compared to six firms in
November. The most recent purchasing managers reports from Buffalo
(for May) and Rochester (for April) suggest that general business
conditions have been basically stable over the latest month
reported.
Labor market developments in the Second District have generally been unfavorable. The unemployment rate in New Jersey rose sharply, from 7.8 percent in April to 9.0 percent in May; New Jersey now has the highest unemployment rate of any major industrial state. New York State experienced a much smaller increase, from 7.6 to 7.9 percent. In addition to the expected loss of 7,200 District retail jobs, Bethlehem Steel and MONY announced the elimination of 350 and 267 positions, respectively. In contrast, Prestolite Electric will consolidate its national operations in upstate New York, creating 320 local jobs over the next three years.
Standard and Poor's has placed New Jersey on negative CreditWatch in response to the state's burgeoning FY1993 budget gap. A combination of factors -- including a one percentage point reduction in the sales tax rate, the loss of anticipated federal medicaid reimbursements, and lower than expected receipts -- have led to a prospective budget shortfall in excess of $1 billion for the fiscal year beginning July 1.
Financial Developments
Nearly all senior loan officers surveyed at small and midsized banks
in the Second District indicated that they are as willing to lend as
they were two months ago. Borrowers who had weathered the recession
were perceived by some officers as having improved their credit
worthiness. Most respondents reported either maintaining or lowering
loan rates. Loan demand was reported to be generally stable or
somewhat stronger. Part of the strength in demand was attributed to
the increase in new customers whose former banks had either failed
or merged. Demand for consumer loans and non-residential mortgages
remained steady,
A majority of respondents reported no change in delinquency rates for all types of loans during the past two months. Most officers did not indicate a marked increase in problem real estate loans. They did, however, express a preference for restructuring, rather than foreclosing, existing troubled loans.