January 19, 1994
Reports on District economic developments seemed somewhat more favorable in recent weeks. Most retail contacts reported December sales results that were above expectations. homebuilders in several areas noted an unanticipated pickup in traffic and contracts at year-end. and nonfarm employment figures showed some further improvement. Unfavorable developments included subdued office leasing activity in Manhattan in recent weeks and additional announcements of large, planned layoffs by District employers. In the banking sector, most senior loan officers at small and midsized banks indicated no change in their willingness to lend over the last two months.
Consumer Spending
Most District retail contacts reported December sales results that
were above plan following generally lower-than-expected sales in
November. After a rather unenthusiastic start to the holiday season,
shoppers became more responsive towards the end of the period, and
many retailers found the weeks just before and after Christmas to be
the strongest of the season. The environment was very competitive,
however, with additional promotions and extensive price-cutting,
particularly on apparel. Several contacts remarked that shoppers
were especially value-conscious this holiday season, holding back
purchasing until items were discounted As a result, profit margins
are expected to have suffered.
Over-the-year sales changes ranged from -2 percent to +15 percent in November and from flat to + 12 percent in December. The annual survey of the Retail Council of New York State found that sales gains throughout the state averaged 6 to 8 percent above the 1992 level for the post-Thanksgiving through the post-Christmas period. A wide variety of merchandise sold well during the months of November and December, with the best sellers including practical items such as home furnishings, electronics and cold weather clothing. Fashion apparel seems to have fared poorly for many retailers, however.
Residential Construction and Real Estate
Homebuilders in several parts of the District reported an
unanticipated pickup in traffic and contracts as 1993 drew to a
close. Partly as a result of this, a majority of respondents now
believe that 1993 housing starts in their area either equaled or
were somewhat above the levels in 1992. Some builders attributed the
year-end improvement to a fear, on the part of previously hesitant
buyers, that a recent rise in mortgage rates might be the start of
an uptrend. Others, however, said they were unable to account for
the increased activity. Several contacts stated that high and rising
lumber prices are a problem which could result in higher home prices
in the months ahead. Nonetheless, most builders were optimistic that
residential construction activity in 1994 would surpass the 1993
level, but probably by only a modest amount.
Office leasing activity in Manhattan was somewhat subdued in recent weeks, particularly in the downtown area where the primary vacancy rate rose. Leasing activity showed a modest gain in midtown, however, and the vacancy rate moved somewhat lower. While vacancy rates remain high in both mid- and downtown Manhattan, they are down in both areas by close to a percentage point from a year earlier.
Other Business Activity
Nonfarm employment showed some improvement in the District as both
New York and New Jersey sustained irregularly higher growth since
August. However. unemployment rates continued to be volatile, with
both states registering increases an December following decreases in
November. New York's unemployment rate now stands at 7.6 percent and
New Jerseys at 7. 1 percent.
With regard to the employment outlook, recent announcements have mainly been negative. Miller Brewing Company plans to close its Syracuse-area plant by October eliminating 700 jobs in addition to 200 currently unfilled positions. The first 300 layoffs are scheduled for January. Two other District manufacturers, Xerox and Bristol-Myers, have also announced additional layoffs without any details regarding location. Xerox, whose largest manufacturing facility is in Rochester, intends to cut more than 10,000 jobs over the next three years, and Bristol-Myers, headquartered in New York City, plans a 5000 job reduction over the next two years. A positive note is that Bethlehem Steel is selling an idle, modernized mill in an arrangement that is expected to result in the recall of 250 former workers in the Buffalo area.
The November surveys of purchasing managers in Buffalo and Rochester showed little change in current conditions. A slightly smaller percentage of Buffalo managers reported increased production, while a slightly larger percentage of Rochester managers noted an improvement in business conditions. However, there was a large increase in the percentage of Rochester managers anticipating a deterioration of general business conditions over the next three months.
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 earlier. While a few officers mentioned an
increased willingness to lend, none reported easing standards, and a
few reported tightening them. Lending rates were mixed with a slight
upward bias. For the first time in over two years, more than one out
of every four respondents reported raising rates. a larger
proportion than respondents lowering rates.
The pattern of overall loan demand was mixed. The demand for commercial and industrial loans remained sluggish, while the demand for nonresidential mortgages weakened further. In addition, residential mortgage demand declined considerably, due both to seasonal factors and to a significant slowdown in refinancing activity. However, the demand for consumer loans, continued to show some signs of improvement. The majority of respondents reported either stable or lower delinquency rates during the preceding two months.