September 23, 1992
The latest developments in the District remained basically mixed but marginally more positive than in other recent months. Most department store contacts said sales were better than expected in July, and on or better-than plan in August. Office leasing activity continued at a moderate pace and the vacancy rate in midtown Manhattan declined, though the downtown rate edged higher. While still at high levels, District unemployment rates fell in August after increasing in July and reports from purchasing managers in Buffalo showed substantial improvement in both production and new orders. Conditions in the residential construction market remained mixed. Most senior loan officers surveyed at small and midsized banks noted no change in their willingness to lend but said that demand continued lackluster.
Consumer Spending
Most stores said sales were better than expected in July and on or
better-than plan in August. Year-to-year changes ranged widely--from
+2 to +14% in July and from -6 to 13.5% in August. While sales gains
were reported to be somewhat smaller in August than in July, this
was due, at least in part, to this year's late Labor Day, shifting
much of the back-to-school buying into September.
Demand for women's and men's apparel was strong in both July and August and new fall styles and fabrics were said to have sold particularly well. Several contacts stated that the unusually cool summer may have been conducive to trying on and buying for the fall and winter since outerwear items also sold briskly. Respondents were generally satisfied with their inventory levels which, for the most part, are on plan or slightly below. Contacts are cautiously optimistic about some modest sales improvement in upcoming months.
Residential Construction and Real Estate
Conditions in the residential construction market continued mixed in
recent weeks with homebuilders in upstate New York reporting
stronger buyer interest than those downstate and in New Jersey. Most
builders anticipate some improvement this year relative to last
year's dismal performance but nothing approaching a housing boom. An
encouraging note for the future is that several projects which had
long been stalled for various reasons are now being revived. In
Westchester County, for example, the initial foundations have
recently been poured at a 153-unit townhouse project which was
mothballed some five years ago, while in Somerset County, work has
begun on a 125-unit townhouse complex initially proposed 12 years
earlier. In Monmouth County, new developers have already obtained
some contracts for a 113-unit single-family project at a site
reclaimed by the lending bank from the original developer.
Office leasing activity continued at a moderate pace since the last report and the vacancy rate on commercial buildings in midtown Manhattan declined. Downtown, however, the rate on primary buildings edged higher as downsizing at financial institutions continued. With the City's vacancy rates remaining at high levels, plans to construct four new office towers as part of the redevelopment of the Times Square area have recently been put on indefinite hold. Instead, the area is to be revitalized and renovated with major tourist attractions and retail establishments.
Other Business Activity
Although still at high levels, District unemployment rates declined
in August after increasing in July. New York's rate fell to 8.5% in
August from 9.4% in July and New Jersey's declined to 9.4% from
9.8%. Despite the August drop in District unemployment rates,
nonfarm employment has continued to decline though the pace of
decline appears to be slackening somewhat. With regard to the
outlook, recent announcements have been for employment changes, up
and down, that are rather modest in size. Fedders will be closing
two New Jersey plants, affecting about 150 workers and Spaulding
Composite will be idling about 300 when it closes its plant in the
Buffalo area by yearend. On the other hand, an electronics firm near
Syracuse will add about 100 workers as it expands into two new
product lines and a Corning Inc. plant that makes converters for
removing auto exhaust pollution may be expanding to converters for
emissions from diesel engines and factory smokestacks as well.
August reports from purchasing managers in Buffalo showed
substantial improvement in both production and new orders.
Financial Developments
Most senior loan officers surveyed at small and midsized banks in
the District indicated that their willingness to lend remained
steady relative to two months ago. A majority of respondents
reported that while overall loan demand remained soft, demand for
residential mortgages increased. Consumer loan demand continued to
be weak, attributed in part to a decrease in demand for automobile
loans. One reason cited for this decline was the surveyed banks'
inability to compete with the lower rates of automobile financing
companies.
All respondents reported either maintaining or lowering loan rates. A majority of officers indicated that delinquency rates on mortgages and commercial and industrial loans have not changed during the past two months. Although deposits continue to shift from maturing certificates of deposit into more liquid savings accounts, the trend was not as prevalent among surveyed banks as two months ago.