June 21, 1995
Reports on District economic conditions remain mixed, but somewhat more positive than in recent months. Retail sales were significantly stronger in May than in the preceding two months. Discussions with small business executives suggest that output of small manufacturing firms remains strong, spurred in part by exports. However, purchasing managers in the Buffalo and New York metropolitan areas report that production has declined. Manhattan's commercial real estate market weakened considerably during April as leasing activity slowed. Finally, aggregate loan demand has remained steady over the past two months, although average loan rates have declined.
Consumer Spending
District retail sales strengthened significantly in May, following
disappointing results in March and April. Although May's sales gains
varied from +2 to +11 percent on a year-over-year basis, most
results were clustered at the upper end of the range. Moreover,
fully half the contacts reported that May sales were above plan,
while only one contact reported below-plan results. Strong May sales
left inventories at or slightly above desired levels by month's end.
Sales of women's apparel strengthened during May, while Mother's Day gift items--including cosmetics, fragrances, and jewelry--sold well. Furniture sales remained weak, however, and several retailers noted that cool, rainy weather had slowed sales of lawn and garden products. Finally, several contacts noted that continuing increases in costs had led to modest increases in prices.
Construction and Real Estate
Midtown Manhattan's commercial real estate market weakened
dramatically during April. Leasing activity -- which peaked in
October and remained above 1.3 million square feet a month between
November and March -- declined to just 815,000 square feet. Lower
levels of leasing activity coupled with return of space to the
market caused the supply of commercial space available in Midtown to
rise.
Other Business Activity
In contrast to the sharp decline in U.S. household employment,
employment in both New York State and New Jersey rose during May.
New York's employment increase was attributable to a decline in the
number of unemployed; as a result, New York's unemployment rate fell
0.5 percentage points in May to 8.3 percent. New Jersey's rise in
employment was accompanied by a slightly more rapid increase in the
labor force, causing the unemployment rate to edge up to 6.5
percent.
Two major corporate changes will have an immediate impact cm employment in the Buffalo area. The expansion of Ingram Micro, Inc. -- a wholesale distributor of computer products -- has just created 600 new jobs, while the closing of Occidental Chemical Corporation's production facility In North Tonawanda eliminated 150 positions at the end of May.
Purchasing managers in the Buffalo and New York metropolitan areas report that production declined in May; in the downstate area, weakness in the non-manufacturing sector more than offset strength in manufacturing. Managers in both regions noted continued increases in commodity prices.
Small Businesses
In recent discussions, executives of small manufacturing firms
expressed a more positive view of business conditions in the Second
District. Two-thirds of those interviewed reported that production
increased in May and early June, with several attributing increases
in output and new orders to dollar-driven increases in exports.
Nearly all of the executives noted that commodity prices
particularly for paper products had continued to rise. Finally,
several of the executives reported difficulty in attracting and
retaining skilled labor.
Financial Developments
Over the past two months, aggregate loan demand has remained steady
at three-fifths of the small and midsized banks surveyed in the
District; demand is evenly divided between higher or lower at the
remaining banks. The residential mortgage and the commercial and
industrial loan segments have the highest levels of loan generation,
with about one-third of the banks reporting higher demand, and
nearly half reporting stable demand in each of these categories.
Though refinancing activity is steady or lower at almost all of the
banks, some of the senior loan officers surveyed expect an increase
in the near future.
Average loan rates have decreased at about sixty percent of the participating banks, and are the same at close to forty percent. The decrease in rates is most widespread in the residential mortgage market, occurring at about seventy percent of the banks. All of those surveyed are just as willing or more willing to lend compared to two months ago. Almost all of the banks have maintained their credit standards, and delinquency rates are stable or lower at over eighty percent of the banks.