November 3, 1993
Economic developments in the Second District were generally mixed in recent weeks. A majority of retailers reported disappointing sales results during August, but some improvement in September. District homebuilding activity showed little change, with only a slight pickup in traffic and contracts in some areas. Office leasing activity has strengthened somewhat and primary vacancy rates declined in several parts of the District. The latest surveys of purchasing managers in Buffalo and Rochester presented a mixed picture. Unemployment rates remained above the national average in September. Most senior loan officers at small and midsized banks indicated no change in their willingness to lend over the last quarter.
Consumer Spending
A majority of retail respondents reported disappointing sales
results during August but said that sales improved in September with
the return of more seasonable weather. Retailers noted that the
weather remained quit warm during August and consumers were not
particularly responsive to the new fall merchandise. With the onset
of cooler weather during September, there was a pickup in apparel
sales as well as strength in items for the home. September sales
results at most stores were generally on or better than plan and
early October data indicated a continuation of this pattern.
However, a few chains reported that sales of women's apparel
remained weak.
Over-the-year sales results ranged from .5.5 percent to +10 percent in August and from -2.7 percent to + 12 percent in September. Most stores reported satisfactory inventory positions, with only one stating that stocks were a little high. Regarding the outlook for the holiday season, all respondents spoke of strong gains last year and the likelihood of much smaller year-to-year increases this Christmas. Citing consumer concern about continuing employment cutbacks and a consequent unwillingness to spend freely, most District retailers are planning for increases of 3 to 5 percent over last year's holiday sales, with one respondent noting that no change over last year was a definite possibility.
Residential Construction and Real Estate
District homebuilding activity showed little change in recent weeks,
though a slight pickup in traffic and contracts was reported in some
areas. Larger builders reportedly are doing well, but some smaller
builders are still finding it difficult even to obtain construction
loans without a signed contract from a buyer. Acquisition and
development loans remain virtually impossible to obtain. Low
mortgage rates and relatively attractive home prices are stimulating
demand, although less than some builders had anticipated earlier in
the year. With continuing layoffs in some local areas and additional
ones still being announced for the future, many would-be buyers
remain cautious about committing themselves to the purchase of a new
home. Observers were almost evenly split between those anticipating
higher and lower housing starts this year compared with last.
Office leasing activity picked up momentum in recent weeks, and primary vacancy rates declined in several parts of the District, including midtown and downtown Manhattan and northern New Jersey. The largest decline--reportedly more than one percentage point over the June to September period--occurred in Fairfield County. Connecticut where much larger blocks of office space have been renting recently in place of the smaller 2000-20,000 square foot leases that had been the norm over the preceding three years. Office vacancy rates on Long Island rose, however, as downsizing firms marketed a large amount of space. Moreover, throughout the District vacancy rates remain at high levels even with the recent improvements.
Other Business Activity
Unemployment rates in the District continued to exhibit a good deal
of volatility but remained above the national avenge. New York's
rate fell in September so 7.1 percent from 7 9 percent in August
while New Jersey's rose to 7.7 percent from 7.1 percent in August.
Both rates are well below their year-ago levels of around 9 percent.
Almost all of the decline, however, reflects a reduction in the
labor force rather than an increase in total employment.
The latest surveys of purchasing managers in Buffalo and Rochester presented a somewhat mixed picture. Buffalo reported higher percentages of firms with increases in both output and new orders while there was a drop in the percentage of Rochester firms stating that general business conditions had improved. The percentage of Rochester firms anticipating gains over the next three months rose substantially, however.
Of the relatively few recent announcements concerning employment in the District, Martin Marietta will retain a Syracuse area complex and move some 300 jobs from Maryland to that facility, and two other firms are also expanding in Syracuse. In addition, Kodak announced that it will open a national service center in Rochester, bringing together its customer service operations from various parts of the country. On the negative side, three drug companies with headquarters and/or manufacturing operations in the District announced that they plan to eliminate a total of 7000 additional jobs over the next three years. No details were given as to the specific locations of the cutbacks.
Financial Developments
Most senior loan officers surveyed at small and midsized banks in
the Second District indicated that their willingness to lend was
unchanged from three months ago. One-quarter of respondents
expressed an increased willingness to make loans, although a much
smaller percentage of them reported easing credit standards. Overall
loan demand was firm to slightly improved. Demand for residential
mortgages, especially for refinancings, exhibited particular
strength. Many officers mentioned that they were increasing
advertising or lowering loan rates to help stimulate demand.
Interest rates on loans were steady or lower, following market
trends for the most part. In addition, almost all respondents
reported either a stabilization or a moderate decline in loan
delinquency rates during the preceding three months.