December 8, 1993
Economic developments seemed slightly more positive in recent weeks. A majority of District retail respondents reported that October sales were on or above plan. Homebuilders noted little change in the residential construction market in recent weeks though a few saw signs of some increased buyer interest. Office vacancy rates moved lower in downtown Manhattan, and some analysts believe that, if the trend continues, this could be the first year since the mid-80s that a net absorption of commercial space occurred downtown. The latest nonfarm employment figures showed some improvement in the region, but the state unemployment rates continued to be quite volatile. Looking to the future, most of our manufacturing contacts expect sales to increase over the next six months, and virtually all reported intense price competition. Most senior loan officers at small and midsized banks indicated no change in their willingness to lend over the last quarter though a few mentioned an increased willingness.
Consumer Spending
A majority of District retail respondents reported that October
sales were on or above plan. Some retailers, however, said that
October sales were somewhat disappointing, due in part to
unseasonably warm weather. In the first half of November, a pickup
in activity was noted at most stores and retailers were cautiously
optimistic about the holiday season ahead.
Over-the-year sales results ranged widely in October, from -6.8 percent to +13 percent. Retailers reported varying experience even with comparable product lines. For example, some retailers noted strong demand for most kinds of apparel, but weakness in items for the home, while others reported opposite trends and attributed weak fall apparel sales to unusually warm weather. As compared with the relatively strong gains last year, they anticipate somewhat smaller year-to-year increases this Christmas. With one exception, all respondents stated that inventories were in good shape going into the holiday season, with some describing them as "lean".
Residential Construction and Real Estate
Homebuilders noted little change in the residential construction
market in recent weeks though a few saw signs of some increased
buyer interest. Respondents were still fairly evenly divided between
those anticipating higher and lower housing starts this year
compared with last. Low mortgage rates, steady home prices and a
reduced inventory of resales were cited as factors behind increased
activity where it exists, but uncertainty about jobs and impending
layoffs continue to contribute to buyer reluctance in many areas.
One respondent noted that many builders were supplementing their
income with remodeling work while another said that subcontractors
were becoming hard to find in his area.
Office vacancy rates moved lower in downtown Manhattan, and some analysts noted that if the trend continues, this could be the first year since the mid-80s that net absorption of commercial space occurred in the downtown area. Vacancy rates rose somewhat in mid- Manhattan, however, as several firms added small amounts of excess office space to the supply.
Other Business Activity
The latest nonfarm employment figures showed some improvement in the
region. New York's September-to-October gain was the largest since
1987, while New Jersey posted its largest manufacturing job increase
in over ten years during September. However, unemployment rates
continued to be volatile, with New York's October rate rising to 7.9
percent from 7.1 percent in September and New Jersey's falling to
6.5 percent from 7.7 percent in September. With regard to the
outlook, recent developments concerning employment have been mixed.
On the positive side, ground was recently broken in Newark for the
$150 million New Jersey Performing Arts Center, scheduled to open in
1996, which is expected to create some 625 construction jobs and 470
permanent positions. On central Long Island, the Fairchild
Corporation plans to demolish its abandoned 80-acre aircraft plant
and erect a shopping mail with three major retailers and scores of
specialty shops. Upstate, Crouse-Hinds announced that it will stay
in the Syracuse area, retaining some 1200 jobs, and GM will add
nearly 600 jobs at its engine plant in Tonawanda. KeyCorp's merger
with Society Corp. could also result in 300 jobs being moved to
Albany from outside the District. On the other hand, Delta plans to
close its New York reservations office, affecting 400 positions, and
Werner-Lambert intends to cut more than 1400 additional jobs in the
U.S. In addition, Dun and Bradstreet announced that it will cut
several thousand jobs worldwide over the next two years.
Most of our manufacturing contacts expect sales to increase over the next six months, with several projecting gains of 5 percent or more. Most firms report intense price competition, and anticipate flat-to- lower prices. Those planning price increases generally acknowledge that they are not sure they can make the prices stick. The majority of the firms expect capital spending in the next six months to equal or exceed spending in the first half of 1993, and most expect wage gains to be moderate and less than in 1993.
Financial Developments
Most senior loan officers surveyed at small and midsized banks in
the Second District indicated that they were as willing to lend as
they were two months ago, and a few mentioned an increased
willingness to lend. The pattern of overall loan demand was mixed.
The demand for commercial and industrial loans remained weak, with
only a few officers noting improvement. In contrast, residential
mortgage demand continued to be strong, largely due to the fast pace
of refinancing activity. The demand for consumer loans exhibited
considerable strength, which several officers attributed to lower
rates and increased marketing efforts. In addition, almost all
respondents reported either stable or lower delinquency rates during
the preceding two months.