January 17, 1996
Reports on economic conditions in the Second District suggest that growth has slowed in recent weeks. District retailers were disappointed by December sales results. More corporate downsizings were announced, including the loss of over 6,000 New Jersey jobs at AT&T. Purchasing managers in Buffalo, Rochester, and New York City reported that manufacturing output growth slowed in November. Demand for new loans at small and medium-sized banks has weakened over the past two months. On a more positive note, the market for commercial real estate in Downtown Manhattan began to improve.
Consumer Spending
District retail contacts reported disappointing holiday-season
sales. Year-over-year sales results ranged from losses of 5 percent
to gains of over 7 percent in December, with roughly half of the
contacts reporting sales declines. Nearly all of the survey
respondents noted that sales were below plan. Despite weaker-than-
expected sales, inventories were generally at desired levels by the
first week of January.
In general, better apparel, jewelry, computers, and cosmetics sold well. In contrast, sales of moderate-price apparel and toys were weak. Several respondents noted the negative impact of weekend snowstorms -- particularly in Western New York State -- and the lack of any new, "must-have" toys this season.
Construction and Real Estate
The market for commercial real estate in Midtown Manhattan was
nearly flat in November. Despite the lease of a large block of
contiguous space, the Midtown vacancy rate edged up 0.1 percentage
points to 14.1 percent.
In contrast, enactment of the Lower Manhattan Revitalization Plan in late October led the Downtown office market to strengthen in November. A surge in leasing activity -- combined with little space returned to the market -- caused the vacancy rate to decline 0.3 percentage points to 25.4 percent. Most of the leasing activity was concentrated in newer, post-1980 office buildings. Over time, the Revitalization Plan is also expected to spur the conversion of older office buildings into residential space; the first of the residential conversions under the new program is scheduled to begin this spring.
Other Business Activity
New York State's unemployment rate declined 0.3 percentage points to
6.0 percent in November. Job gains in the service, trade, and
manufacturing sectors more than offset losses in finance and
government. In contrast, New Jersey's unemployment rate rose 0.3
percentage points in November to 6.1 percent. Although the number of
unemployed workers in New Jersey increased, total employment was
nearly unchanged, with increases in the service and trade sectors
offset by declines in manufacturing.
The pace of corporate restructuring picked up as 1995 ended. AT&T announced plans to eliminate over 6,000 jobs in New Jersey, with the majority of the cuts expected to occur in 1996. New Jersey will also be affected by the Public Service Electric & Gas company's plan to eliminate 1,000 jobs through attrition over the next three years. More immediate reductions of 500 employees each are expected at New Jersey's Interstate Bakeries Corporation and New York's Quebecor Printing Buffalo, Inc.
Reports from purchasing managers suggest that manufacturing output growth slowed in the Buffalo and Rochester areas during November, while manufacturing output in New York City actually declined. However, strength in New York City's larger non-manufacturing sector more than offset weakness in manufacturing. Commodity price pressures moderated in New York City and Rochester, while increasing slightly in Buffalo.
Financial Developments
A survey of senior loan officers at small and medium-sized banks in
the District reveals that demand for new loans has weakened over the
past two months. The consumer loan segment has undergone the largest
decline in activity. Demand for these loans is lower at roughly 50
percent of the banks and steady at about 35 percent. Over three-
quarters of the respondents report higher or stable consumer loan
delinquency rates. The only lending category which did not weaken
was demand for commercial and industrial loans, which was higher at
approximately 25 percent of the banks and steady at 50 percent.
Refinancing activity for all types of loans increased.
The spread between average lending and deposit rates has narrowed at almost half of the banks, primarily due to a decline in the average lending rate. Average loan rates are lower at about 60 percent of the reporting banks and steady at over 35 percent. Overall, survey respondents are somewhat more willing to lend than they were two months ago while credit standards have remained constant.