August 9, 1995
Reports on economic conditions in the Second District were generally mixed in recent weeks. Although Midtown's commercial real estate market firmed in June, reports from other markets varied widely. Announcements of major job gains in June and July were largely offset by announcements of job losses. Aggregate loan demand at small and mid-sized banks weakened over the past two months, despite declines in average loan rates.
Consumer Spending
District retail sales rose moderately during June. Sales gains
ranged from +1 to +10 percent on a year-over-year basis and averaged
roughly 5 percent. Inventories were generally on plan at the end of
June. Sales of women's apparel (particularly sportswear),
accessories, and cosmetics were strong. Men's sportswear and
commodity consumables also sold well. As in recent months, sales of
furniture and home goods remained weak. Several retail contacts
noted that price pressures remain subdued.
Construction and Real Estate
Midtown Manhattan's commercial real estate market firmed during
June. Office vacancy rates declined 0.4 percentage points to 13.5
percent, just equaling the rate at the beginning of the year.
Moreover, the Midtown market received a major boost when the City
reached agreement with a group of entertainment companies to open an
array of attractions --including two theaters and a wax museum -- on
42nd Street.
In contrast to renewed strength in Midtown, office vacancy rates in Downtown Manhattan rose to 24.6 percent in June as leasing activity remained unusually sluggish. Anticipation of the enactment of the Downtown Revitalization Program -- widely expected to provide a long-run boost for Downtown -- has contributed to the area's short- term difficulties; in order to qualify for the program's financial incentives, some prospective tenants are deferring closings on new leases until the legislation passes.
The market for office space in New York City's suburban counties was mixed during the second quarter. Steady leasing activity led office vacancy rates to decline in Northern New Jersey, Westchester (NY), and Fairfield (CT). In contrast, vacancy rates rose on Long Island; Nassau's rate jumped a full percentage point as large blocks of space previously occupied by aerospace firms returned to the market.
Residential builders in Northern New Jersey report that sales of new single family homes -- slow throughout the normally brisk spring selling season -- have not yet rebounded. Several contacts noted that although customer traffic picked up in July, it has not yet translated into sales.
Other Business Activity
Nonfarm employment inched down in both New York and New Jersey
during June. New York's employment decline was accompanied by a
larger decline in unemployment causing the unemployment rate to
decrease 0.4 percentage points to 5.9 percent. New Jersey's
unemployment rate edged up 0.1 percentage points to 6.6 percent.
Announcements of Second District job gains have been largely offset by announcements of job losses over the past two months. The roster of firms announcing plans to increase employment includes Bus Industries (+450 jobs in the Syracuse region), Buckbee-Meers (+300 Syracuse region jobs), Upgrade Corp. (+250 jobs in Buffalo), and General Motors (+200 jobs in the Albany region). Utica will retain Rome Laboratory's 1,000 jobs, but lose an equal number of positions as Lockheed Martin closes its Utica facility and transfers many of the plant's workers to the Syracuse area and New Hampshire. Other recent announcements of job cuts include Hughes Training (-1,000 jobs in the Albany region, with at least 700 jobs transferred to Texas and Virginia), CNA Insurance (-400 Albany region jobs), and the Seneca Army Depot (-300 mostly civilian employees).
Purchasing managers in the Buffalo and Rochester areas reported that manufacturing production increased during June, while purchasers in the New York metropolitan area reported a modest contraction in the overall pace of business conditions. Reports of commodity price pressures varied widely.
Financial Developments
Compared to two months ago, aggregate loan demand is steady at about
forty percent of the small and medium sized banks surveyed in the
District and low at about thirty-five percent. The commercial and
industrial (C&I) loan and nonresidential mortgage segments are
generally weaker. Demand for C&I loans is lower at approximately
two-fifths of the banks and higher at only one-fifth. Nonresidential
mortgage demand is the same or lower at nearly all of the banks.
Refinancing activity continues to increase; it is higher at almost
one-quarter of those banks surveyed.
Average loan rates are low at about eighty-five percent of the participating banks, and are the same at the remaining banks. About forty percent of the respondents note that the spread between the average lending and deposit rates has narrowed. Over the past two months, nearly all of those surveyed have maintained their credit standards, and are just as willing or more willing to lend. For the most part, delinquency rates are stable or lower.