November 2, 1994
District economic growth slowed somewhat in recent weeks. A majority of retailers surveyed reported lower-than-expected sales and homebuilders noted a slackening of momentum in the market for both new and existing homes. The movement in September unemployment rates was mixed, however, and office vacancy rates fell in many parts of the District. Senior loan officers surveyed at small and midsized banks reported that overall loan demand remained mixed.
Consumer Spending
Although year-over-year sales results varied widely at District
retail stores during September, a majority of contacts reported that
sales were somewhat below plan. They attributed the shortfalls in
part to unseasonably warm weather during much of the month which
deterred buying of outerwear and much of the new fall apparel.
Several chains noted a decided pickup in apparel sales with the
return of cool weather in early October. Most respondents stated
that goods for the home sold well in September and some, with a
smaller concentration of apparel, reported better-than-expected
sales results.
Year-to-year sales results in September ranged from flat to +9 percent among surveyed retail chains in the District. Items mentioned as selling well in addition to goods for the home were women's accessories and cosmetics, and men's suits and sportscoats. Early in the month back-to-school merchandise did well. Despite some buildup in inventories as a result of slower-than-planned sales, respondents were generally comfortable with inventory levels but intended to monitor them closely.
Residential Construction and Real Estate
District homebuilders reported a recent slowing of momentum in the
market for both new and existing homes. One respondent described
this year's activity as unusually volatile with traffic and sales up
and down like waves. Most contacts expect that, on balance, District
housing starts will show little change this year from last year's
level. The current lackluster activity was attributed by several
respondents to the continued downsizing by major corporations in the
region with a resultant negative impact on consumer confidence.
Higher interest rates were cited as another depressing factor,
though apparently not a major one since contacts noted that rates
remain at historically moderate levels.
Office leasing activity was sufficiently brisk to lower vacancy rates in many parts of the District during the third quarter. The biggest drop was in the 11-county northern New Jersey area where the rate fell by almost a percentage point between June and September. Rates were down by smaller amounts in Fairfield County, (where vacancies were at their lowest level in five years), in Westchester County and on Long Island. However, vacancy rates backed up a bit in both midtown and downtown Manhattan from August to September.
Other Business Activity
District unemployment rates were mixed in September as New York's
rate fell to 6.2 percent from 6.9 percent in August while New
Jersey's rose from 6.0 percent to 6.7 percent. Several major
employers announced additional employment cutbacks or reiterated
their earlier plans to do so. Among those planning payroll
reductions in the thousands are IBM, Northrop Grumman, Nynex, New
York City government and the brokerage industry (taken as a whole).
Despite earlier comparably-sized corporate cutbacks, however,
District nonfarm employment has been growing fairly steadily for the
last several months.
Several developments occurred in recent weeks which should impact positively on the District economy. Ground was broken for two mixed- use projects which have joint public and private sponsorship: a $2.3 billion development in Queens combining residential, commercial and retail components, and a $200 million retail and residential project in downtown Brooklyn. Additionally, the Port Authority of New York and New Jersey announced an $800 million plan to rebuild the largest terminal at Kennedy Airport.
In the area of entertainment and tourism, MTV will develop a studio complex in three adjoining Times Square theatres and Disney has expressed interest in another 42nd Street theatre. New York City has been the location for several new movies in recent months following several years of little moviemaking, and the number of tourists and hotel occupancy rates in the City reached their highest levels in several years.
Financial Developments
Senior loan officers surveyed at small and midsized banks in the
District reported that overall loan demand remained mixed. The
largest declines in activity occurred in the residential mortgage
and refinancing segments. More than half of the banks experienced
lower demand for residential mortgages and over three-quarters
reported less or no refinancing activity. The commercial and
industrial loan segment saw the largest increase in activity, with
demand higher at almost one-half of the banks. Consumer loan demand
also showed a slight improvement. Loan rates have generally
increased, though a few banks lowered rates on residential
mortgages.
While more than half of the surveyed officers noted no change in their willingness to lend, over one-third reported increased willingness. Very few banks changed their credit standards, and almost all reported stable or lower delinquency rates. About one- half of the loan officers noted a smaller spread between the average lending and deposit rates following recent increases in deposit rates.