December 4, 1996 Federal Reserve Districts Second District - New York

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The Second District�s economy continues to expand at a moderate pace, with little change since the last report. Sales at large retailers slowed in late October, but were generally back on track in early November, with sales running on or above plan. Manhattan�s commercial real estate markets remain strong, while the housing market has improved slightly. Unemployment leveled off at a cyclical low of about 6 percent in October, while private-sector job growth continued to slow. The Canadian GM strike reportedly had some effect on manufacturing activity in upstate New York in October, although purchasing managers surveys indicate only a modest deceleration in growth. There has been little change in price pressures since the last report; however, retailers report somewhat heavier discounting in recent weeks. Finally, regional banks report weaker loan demand, slightly tighter credit standards and some further increase in consumer delinquency rates. Consumer Spending Most general merchandise retailers report that sales were on or above plan in early November, following a bit of a slump in the second half of October. Large retail chains continue to cite apparel as the strongest category with two contacts noting particular strength in children�s apparel. Home goods (especially electronics and appliances) remain the weakest segment, though one large home improvement chain reports that sales are ahead of plan and up more than 10 percent from a year ago, on a same-store basis. Virtually all retailers report that inventories are at desired levels; only one contact reports that they are a bit high. Looking ahead to the upcoming holiday season, all of the retailers surveyed still anticipate the same sales gains as in the last report--these range from 2.5 to 6 percent on a same-store basis. A Conference Board survey conducted every November shows consumers in the region planning to spend 13 percent more than last year, on average, despite low levels of consumer confidence. Selling prices are essentially flat; a number of contacts note a pickup in discounting activity in recent weeks, although some simply attribute this to merchants eager to get a jump on the shorter-than-usual holiday season (due to a late Thanksgiving). Merchandise costs remain virtually flat, and there has been no reported increase in wage pressures. Construction and Real Estate The region�s housing markets appear to have strengthened somewhat since the last report. Sales of existing single-family homes were brisk in October (however, this reflects contracts signed a few months prior and so may be a lagging indicator). While home prices are running less than 2 percent higher than a year ago, unit sales are up nearly 10 percent; moreover, in October, seasonally adjusted unit sales surged to their highest level of the year. In general, market conditions remain strongest down-state, though there has been a substantial pick-up in the Albany area in recent months (albeit from low levels). Home builders in New York and New Jersey report that the market for new homes remains fairly stable. Manhattan�s commercial real estate markets remained strong in October. Midtown�s office availability rate declined from 14.2 to 13.9 percent, led by an "outburst of leasing activity"; downtown�s rate held steady at 23.4 percent. (Availability rates include vacant space, as well as space coming on the market over the next six months to a year.) Commercial rents were essentially flat. Manufacturing The Canadian GM strike reportedly had a temporary ripple effect on upstate New York�s auto-related industries and jobs in October. Still, regional surveys of purchasing managers suggest that manufacturing activity continued to expand in October, though at a more moderate pace than in September. New York City area purchasing managers, though less euphoric than a month ago, still expressed a favorable view of the local manufacturing sector. The Buffalo-area survey indicates that production expanded at roughly the same pace as in September, although growth in new orders and employment slowed. Respondents in both localities reported little or no change in price pressures. Other Business Activity Job growth continues to slow, while regional unemployment--which had been trending down earlier this year--has leveled off at a cyclical low. New York�s unemployment rate held steady at 5.9 percent in October, while New Jersey�s edged down from 6.2 to 6.1 percent. Private-sector job growth in New York and New Jersey slowed further in October, partly due to the GM strike in Canada. However, income growth remains strong, largely fueled by the bull market on Wall Street, and tax receipts continue to grow at a fairly strong pace--New York City recently revised up its projected FY 1997 revenues by $450 million. Tourism remains strong, with hotel occupancy rates holding steady at 16-year highs and room rates up more than 15 percent from a year ago. Financial Developments According to a survey of senior loan officers at small to medium sized banks in the District, overall demand for loans fell during the past two months. The sharpest decline was in the residential mortgage segment, with demand down at 45 percent and up at only 16 percent of the banks surveyed (possibly signaling an incipient slowdown in housing). Demand for consumer loans, however, rose moderately. Refinancing activity for all types of loans was flat. Fewer banks than in the prior survey reported increased willingness to lend, and more banks tightened than eased their credit standards. Average loan rates declined for all types of loans. The residential mortgage segment experienced the largest decline, with rates lower at almost 40 percent of banks and higher at only 7 percent. In contrast, average deposit rates were flat at almost two-thirds of participating banks. Delinquency rates continued to climb, on balance, with 31 percent of banks reporting a general increase and 22 percent indicating declines; the largest reported increases were for consumer loans. Return to top Boston Philadelphia