May 5, 1993
Economic developments in the Second District were mixed in recent weeks, but on balance tended toward improvement. Plagued by severe snowstorms, most retail contacts reported sales results below plan during February and March, though some were able to recoup much of their shortfall during the final weeks of March. New York's unemployment rate declined in February and March while New Jersey's rate rose. Office leasing activity varied widely with some vacancy rates declining and others increasing. Homebuilders in most of the District reported some recent improvement and anticipate that home sales will surpass last year's level. In its first assessment of the local economic impact of the World Trade Center bombing, the Port Authority of New York and New Jersey estimated that the net short- term effect would be a small, positive one due to the increase in jobs for reconstruction and cleanup work financed by national insurers. Personal income tax receipts in both New York and New Jersey continued to show sizable over-the-year gains. The latest survey of small and midsized banks showed an increase in their willingness to make loans.
Consumer Spending
Plagued by severe snowstorms in February and March, most District
retail contacts reported sales results that were less-than-targeted
during both months. Some, however, were able to recoup much of their
shortfall in the final weeks of March. Due in part to the earlier
occurrence of Easter this year, some improvement was also noted
during the first half of April. Over-the-year sales changes ranged
from -7 percent to +6 1/2 percent in February with all retailers
except one posting results that were below projections. A few more
retailers had results that were on or better than plan during March
when year-to-year changes ranged from -5 percent to +12 percent.
The cold and stormy weather reportedly put a damper on sales of adult spring apparel at several stores, but sales of children's clothes for Easter did well. Furniture and home appliances sold well at some chains and retailers are hopeful that warmer weather will spur apparel sales in the weeks ahead. Despite some recent inventory buildup resulting from below-plan sales, the majority of contacts reported no significant inventory problems. However, a few stated that additional promotional efforts may be needed to pare stocks.
Residential Construction and Real Estate
Homebuilders in most of the District reported some recent
improvement in the residential construction market and most
anticipate that home sales this year will surpass last year's level.
The continued low level of mortgage rates and somewhat more
enthusiasm on the part of potential buyers at home shows were cited
for this optimism. In addition, in New York City several well-known
developers are reportedly planning to build new rental apartment
buildings for the first time in several years. Apparently, these are
now feasible because of a declining vacancy rate for market-priced
rental units and because of recent changes in local and federal tax
laws. No one is anticipating boom conditions, however, given the
continuing concerns about job security in various parts of the
District and general uncertainty about the impact of proposed
changes in federal tax policy. Lumber prices remain quite high and
some newly written contracts are guaranteeing home prices for only
30 days to safeguard builders against further escalation of lumber
costs. Financing remains a widespread problem for construction as
well as acquisition and development loans in some areas. However, a
recent easing of bank construction loans was noted in western New
York.
Developments in the District's office market have been mixed. Leasing activity was reportedly brisk in midtown Manhattan where, despite some additions to space, the vacancy rate edged down. While activity in downtown Manhattan remained subdued, the area has managed to absorb some of its vacant space in recent months and the primary vacancy rate has begun to decline. The vacancy rate has risen sharply in Westchester County, however, due in part to the addition of large blocks of space created by IBM's downsizing.
Other Business Activity
New York's unemployment rate declined in both February and March and
now stands at 7.3 percent. However, New Jersey's rate rose in both
months, reaching 8.3 percent in March. Personal income tax receipts
in both states continue to show sizable over-the-year increases
implying moderate gains in personal income. Layoffs have started at
the IBM plants in New York State where some 6000 positions are to be
eliminated. With the Justice Department's recent approval of Martin
Marietta's purchase of G.E.'s aerospace division, many additional
workers could be laid off in the District as the division is
absorbed. A recent report by the Business Council of New York State
noted that a sizable majority of 800 surveyed businesses believe the
State's recovery will lag behind the rest of the nation and that
this will continue in 1994.
In its first assessment of the local economic impact of the World Trade Center bombing, the Port Authority of New York and New Jersey estimated that the net short-term effect would be a small, positive one. Since almost all of the damage to businesses was insured, the reconstruction and cleanup effort was largely financed from outside the region but provided jobs for people living here. The long-term effect could be different, however, if insurance premiums rise, revenue is lost because the Center decides to restrict public access to certain facilities and/or the prestige of the Center is reduced as a result of the bombing.
Financial Developments
The latest survey of small and midsized banks in the Second District
continued to show an increase in banks' willingness to make loans.
The percentage of loan officers more willing to make nonresidential
mortgages was the highest since 1991. Willingness to make all other
types of loans was steady or higher than two months ago. Consumer
loan demand and residential mortgage demand strengthened. with the
latter generally attributed to increased refinancing activity.
Demand for business loans was unchanged.
Surveyed bankers indicated that the recent policy change requiring less documentation on "character" loans by healthy banks has not affected their lending to small businesses. Moreover, their reactions to proposals to create a secondary market for business loans were mixed. Several officers mentioned that securitization often results in the loss of relationships with the community, which are essential to small business lending. Also cited as a potential hindrance was the customized and unique nature of small business loans, which renders them difficult to securitize. However, increased liquidity and reduced risk might encourage more small business lending. Several officers suggest that the expansion of Small Business Administration programs would be the best vehicle for stimulating small business loans.