March 12, 1997
Federal Reserve Districts
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The Second District economy continued to improve since the last report, while price pressures remained subdued. Major retailers report that sales were ahead of plan in January and February, helped by mild weather and a week-long sales tax abatement in New York. Manhattan’s commercial real estate market continued to tighten in January, with office vacancy rates declining and asking rents beginning to inch up. The market for both new and existing single-family homes has reportedly improved in early 1997, while activity in the multi-family segment remained steady at a fairly strong level. Consumer confidence rose sharply, to a cyclical high, in February. Regional purchasing managers’ reports were mixed but, on balance, upbeat in the first two months of 1997. Finally, local banks report that overall loan demand has been steady, while delinquency rates on consumer loans continued to edge up.
Premium apparel continued to be the strongest category, followed by accessories and cosmetics. Sales of consumer durables were generally weak—most contacts report that home goods and electronics continued to lag, but one contact noted a pickup in furniture sales, while another cited strong sales of floor coverings. One large discounter noted that customer traffic was normal, but that average purchases were noticeably stronger. Two contacts noted particular strength in new (as opposed to clearance-sale) merchandise. Most retailers report that inventories are in “great shape”; one contact mentioned that stocks are a bit high but “cleaner” (more salable) than in 1996.
Retail selling prices remain steady. Although a number of contacts report that competition is less aggressive than a year ago, retailers feel they have little if any ability to raise prices. However, the gradual shift in product mix toward more upscale merchandise has helped to boost retail margins.
Construction and Real Estate
Residential real estate markets have been steady to stronger in early 1997. Permits to build New York City apartments, which rose sharply in 1996, remained high in January, suggesting brisk construction activity in 1997. This, along with a wave of commercial-to-residential conversions, may be alleviating the shortage of multi-family units somewhat—according to a large New York City real estate broker, prices of prime Manhattan co-ops and condos have been essentially flat since last summer, and were lower in December and January than a year earlier.
The single-family market appears to be gaining momentum. Sales of existing homes across New York were up 5.7 percent from a year ago in January, with average prices up 5 percent. (Apparently, the January 1996 sales pace was little affected by last year’s blizzard.) In New Jersey, both realtors and builders describe the housing market in January and February as stronger than in early 1996; in absolute levels, existing home sales are reported to be fairly high, but new home sales are still quite low.
Other Business Activity
Consumer confidence surged to a six and a half year high in February, though it was still well below the national average. The impact of AT&T’s recently announced reorganization plans remains to be seen. Tourism reportedly remained strong in early 1997, with first-quarter hotel occupancy rates projected to be up nearly three points from a year earlier; room rates continued to rise in early 1997, though the pace has slowed from the 10-12 percent registered in 1996.
Interest rates on most categories of loans were unchanged. The exception was residential mortgages, with 34 percent of banks surveyed reporting lower rates and only 6 percent indicating higher rates. Average deposit rates rose, with 32 percent of respondents reporting higher rates and only 11 percent indicating declines. Delinquency rates on consumer loans continued to edge up—they were higher at 30 percent of banks and lower at 20 percent; however, delinquency rates on nonresidential mortgages were lower than in the prior survey.