January 18, 1995
Reports on District developments in recent weeks by and large indicated some improvement. Most retail contacts reported that holiday sales were on or slightly above their expectations and office leasing activity was sufficient to reduce the vacancy rates in several parts of the District. District unemployment rates fell sharply in December. Homebuilding activity, though, has been seasonally slow. Almost 90 percent of the senior loan officers surveyed at small and midsized banks reported steady or lower aggregate loan demand compared with two months earlier.
Consumer Spending
Most District retail contacts reported that holiday sales results
were on or slightly above plan though their own targets were
apparently lower than many analysts saw for the industry as a whole.
The weak sales plans were at least in part based on lackluster sales
of apparel and outerwear during much of October and November. As a
result, some respondents had reduced their orders for soft goods
prior to Thanksgiving, and all prepared for what several described
as the most promotional holiday selling season they could remember.
As a result, profit margins are expected to have suffered.
The annual survey of the Retail Council of New York State found that sales gains throughout the state averaged 3 to 5 percent above the 1993 level for the day-after-Thanksgiving through day-after- Christmas period. Household durable goods, computers, VCRs, jewelry, accessories and in-line skates were some of the best-selling items. Individual retail contacts in the District reported over-the-year changes ranging from virtually flat to +8 percent during December. Inventories were generally in satisfactory shape by year-end with most contacts expecting to eliminate any excess amounts during January clearance sales.
Residential Construction and Real Estate
Homebuilding activity has been seasonally slow in most of the
District recently. Looking ahead, some contacts expressed concern
that higher interest rates may become more of a deterrent in the
spring (when buyer traffic typically picks up substantially) than
they have been up to now. Others are apparently more optimistic as
witnessed by the fact that several large, long-stalled projects have
recently been revived in the District. These include waterfront
developments in Jersey City and the Bronx as well as a townhouse
project on Staten Island.
While office leasing activity has reportedly slowed somewhat from earlier months, it was sufficient to reduce the vacancy rates in several parts of the District recently. In downtown Manhattan the office vacancy rate has moved down in each of the last three months after a jump in September, while in midtown Manhattan, the rate in December was a full percentage point lower then three months earlier. Among other areas reducing office vacancy rates between the third and fourth quarters were Fairfield County, Connecticut and, in New York State, Westchester County, where the rate fell more than two percentage points, and Nassau County. Office vacancy rates rose in the fourth quarter in Northern New Jersey and Suffolk County.
Other Business Activity
District unemployment rates fell sharply in December as New York's
rate dropped to 5.4 percent from 6.3 percent in November and New
Jersey's declined to 6.1 percent from 6.6 percent State unemployment
rates are very volatile, however, and could bounce higher in the
near future. There have been several recent announcements and
reports which point to future job cuts. Chemical Banking plans to
eliminate 3700 positions, 9 percent of its staff, and further
layoffs are slated in the brokerage industry as well. Cutbacks and
reduced profits in the financial industry have been cited as one
major factor in the recent widening of New York City's budget gap.
The City, New York State, and New Jersey all face budget gaps in the
billions of dollars which at best will mean further declines in
services and could involve additional employment cutbacks. Finally,
as an outcome of the Macy-Federated merger, A&S will close its
executive offices in Brooklyn, laying off some 650 employees there.
On a more positive note, New York City was one of six cities chosen nationwide as urban empowerment zones, each of which will receive $100 million in social service grants and tax breaks for businesses located in the zones. In addition, KMart recently signed a lease to open its first Manhattan store--the latest of the chain stores making their first forays into the borough in response to lower rents and the enticement of population density.
Financial Developments
Almost 90 percent of the senior loan officers surveyed at small and
midsized banks in the District reported that aggregate loan demand
was either steady or lower when compared with two months earlier.
The residential mortgage and refinancing segments saw the largest
declines in activity. About half of the banks experienced less
residential mortgage demand while over three-fourths experienced
lower or no refinancing activity. The commercial and industrial loan
segment was the strongest, with over half of the survey participants
reporting steady demand and about one-fourth reporting higher
demand.
Loan rates are mainly higher or the same across all categories of lending. Almost all of the respondents noted that recent increases in deposit rates resulted in no change or a narrowing of the spread between the average lending and deposit rates. Of the senior loan officers surveyed, about 80 percent maintained and about 20 percent increased their willingness to originate various types of loans. Very few banks changed their credit standards, and almost all had stable or lower delinquency rates.