Beige Book Report: New York
May 8, 1996
Second District economic conditions have weakened somewhat over the past two months, despite a modest pickup in job growth. Reports from retailers were very mixed in March and April, with year-over-year changes ranging from outright declines to double-digit gains; but on balance, sales were weaker than in February and a bit below plan. Job growth has accelerated somewhat, but a corresponding increase in labor force participation has kept unemployment rates from declining. Finally, banks' delinquency rates, which had been rising, leveled off in the past two months, while demand for commercial and industrial loans picked up.
Consumer Spending
March and April retail sales in the region varied substantially
among the retailers surveyed but were generally weaker than in
February. An early Easter distorted monthly sales figures, boosting
March at the expense of April; for the two months together, year-
over-year changes in same-store sales ranged from a decline of 1
percent to a double-digit increase-overall gains averaged slightly
more than 3 percent, down from 6 percent in February. A number of
contacts reported that sales were below plan, but all reported that
inventories were close to desired levels by late April.
Unseasonably cold weather reportedly had a moderately negative impact on sales, particularly in March. One contact attributed February's strength-and March-April weakness-to earlier-than-usual tax refunds. Apparel, especially women's, generally outperformed other merchandise categories considerably stronger for upscale apparel than for more moderate lines. Most retailers are holding prices steady, though reports suggest somewhat less discounting than a year ago. Cost for merchandise and labor are generally flat.
Construction and Real Estate
Commercial real estate markets in the New York metro area were
stable in March. A dip in leasing activity pushed Midtown
Manhattan's office vacancy rate back up to 14.2 percent (matching
December's level), from 13.9 percent in February. But downtown's
rate edged down for the fifth consecutive month, to 24.6 percent in
March, versus 24.7 percent in February and 25.7 percent last
October. In the first quarter, northern New Jersey's office vacancy
rate fell from 19.2 to 18.7 percent (a six-year low); rates edged up
in Westchester and Fairfield counties, but are lower than a year
ago.
Reports on the residential real estate market were mixed in April. Contacts in downstate New York continue to experience a better spring selling season than last year-both traffic and sales are up. However, builders report no recovery in the Albany area (which has been depressed by state government downsizing), and only a moderate pickup in the western tier of the state in recent weeks. New home sales across upstate New York remain weaker than a year ago; while the inventory of new homes is very low, a large supply of existing homes for sale is depressing the overall market.
New Jersey builders say that sales and traffic have slowed a bit in recent weeks, following a first-quarter pickup, and that sales are lower than a year ago-one contact described the market as "listless", noting that while consumer pessimism has diminished, so has the sense of urgency to buy. Apparently, the recent rise in mortgage rates has, thus far, not been much of a factor.
Manufacturing
Regional surveys of purchasing managers were mixed in April.
Business conditions in metropolitan New York City's manufacturing
sector improved in April but were still on the weak side (outside
the manufacturing sector, local conditions continued to be mildly
positive). Conversely, purchasing managers in the Buffalo area
reported that business conditions in the manufacturing sector, which
had been quite favorable throughout the first quarter, deteriorated
sharply in April. Apparently, this incipient weakness was not
directly related to the GM strike, which is estimated to have idled
6,000 Buffalo-area workers at its peak in mid-March. Purchasing
managers in New York City report continued declines in prices paid,
but those in Buffalo cite modest increases.
Other Business Activity
The district's labor market strengthened somewhat in the first
quarter. Payroll employment growth was above trend in New York and
New Jersey, both for the month of March and year-to-date. New
Jersey's unemployment rate has remained fixed at 6.4 percent since
January, while New York State's rose from 6.0 to 6.5 percent in
March, after edging down by 0.2 points in February. (New York's rise
was due to a sharp increase in labor force participation, which was
accompanied by a more moderate rise in employment). New York City's
ongoing fiscal difficulties have prompted the mayor to accelerate
job cuts for the upcoming fiscal year, while a number of large
corporations-General Public Utilities, Perkin-Elmer, Kraft, and
Prodigy -announced job cuts totaling about 1,000 in the region. On a
brighter note, tourism continues to boom, with first-quarter hotel
occupancy rates in New York City climbing to a 16-year high.
Financial Developments
At small and medium-sized banks surveyed in the district, overall
demand for new loans in April was higher at about 40 percent of the
surveyed banks and steady at another 40 percent compared to two
months earlier. According to senior loan officers at the surveyed
banks, the largest increase was seen in the commercial and
industrial loan segment, with demand higher at nearly 35 percent of
the banks and steady at about 45 percent. Growth in demand for
residential mortgage loans weakened slightly; demand is lower at
about 30 percent of the banks and steady at another 30 percent.
Refinancing activity for all types of loans dropped sharply,
reversing the upward trend that began last November.
Average loan rates, which had been trending down, leveled off in April--only 35 percent of respondents reported declining loan rates, down from 76 percent in February; residential mortgage rates have increased, on balance. With average loan rates leveling off, more banks than previously reported a widening of spreads between average loan and deposit rates. Delinquency rates have decreased or remained the same at more than 80 percent of the banks. Banks were more or just as willing to lend in April as in February, and credit standards have generally remained the same.