January 22, 1997 Federal Reserve Districts Second District - New York

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The Second District economy has a slightly firmer tone than in the last report, while price pressures remain subdued. Major retailers report that holiday-season and post-holiday sales were on or above plan. Persistent strength in the commercial and multi-family real estate markets finally appears to be spurring a pickup in development and construction activity; the single-family housing market continues to lag. Regional purchasing managers' reports were generally upbeat in December. Tourism remained strong through year-end. There has been no evidence of increased price pressures since the last report. Finally, regional banks report some softening in demand for residential mortgage loans; delinquency rates rose for consumer and home mortgage loans, but declined for commercial loans. Consumer Spending Most major retailers report that holiday sales in the region were above plan, with November-December same-store sales running 5-8 percent higher than a year ago, helped by a surge in the final days before Christmas. Post-holiday sales were also reported to be strong, with one contact observing fewer than usual merchandise returns. A separate survey of small retailers across New York State shows same-store sales up 4-6 percent from 1995, and generally close to plan, with the strongest reports coming from Manhattan. Both large and small retailers noted that apparel, as expected, was the strongest category--particularly women's and children's apparel--along with jewelry. Big-ticket durables, such as home furnishings, appliances and electronics were generally weak, though a few contacts at large chains remarked that toys and electronics (other than computers) sold fairly well. One major discounter noted strong post-holiday demand in the home improvement category. Most of the retailers surveyed report that inventories are in good shape; however, many electronics stores were left with large stocks and one major general merchandise chain mentioned some overhang of home appliances. There was reportedly less aggressive discounting than a year earlier but still more than most contacts had anticipated. Merchandise costs were said to be flat to declining, and there were no reported wage pressures; thus, most retailers saw improvement in gross margins, compared with the 1995 season. New York State sales taxes on most apparel are being waived for the week starting January 18, prompting many retailers to delay inventory clearance sales until then; this may give some boost to January retail sales, at the expense of February. Construction and Real Estate The region's real estate markets continue to firm. Even the lagging single-family housing market has registered steady but gradual improvement. Realtors in New York and New Jersey estimate that fourth-quarter existing home sales rose 3-4 percent from a year earlier, with prices up 2-5 percent. While builders have grown a bit more upbeat about the market for new homes in recent weeks, they emphasize that overall building activity is still only barely above the depressed levels of the early 1990s. In contrast, the tight apartment market in the New York City area is evidently spurring a pickup in multi-family development. More than twice as many apartment units were authorized by building permits in 1996 (mostly in the second half) as in any of the prior five years. This is consistent with anecdotal reports: industry contacts in New York City say that a large number of residential projects are underway or set to get underway in 1997. In addition, one industry expert estimates that 2,500 new residential units will be created from a wave of office conversions in Lower Manhattan next year. Strength in the region's commercial markets is also spurring new development. Major commercial projects underway in New York City in 1997 include a new terminal at Kennedy Airport, a high-tech commodity exchange trading floor, three major entertainment complexes, three new hotels, and a number of major superstores and supermarkets. The office market also continues to firm; vacancy rates across the New York City area continue to fall, though asking rents remain virtually flat. Other Business Activity Regional purchasing managers reports were generally upbeat in December. Buffalo purchasing managers report continued strength in new orders and a pickup in hiring activity, but some slowing in production activity; they also reported a modest increase in cost pressures. New York City purchasing managers report continued growth in the manufacturing sector, though at a slower pace than in November. [Those in non-manufacturing sectors reported strong improvement in business conditions in December.] Prices were reported to be essentially flat. Unemployment edged up 0.1 point in both New York and New Jersey in November; the payroll survey showed a sharp decline in government payrolls, offset by an acceleration in private-sector job growth. Some firms in upstate New York report shortages of educated entry-level workers and computer programmers. Consumer confidence climbed to its highest level in more than six years in December, though it is still lower than in any other region. Tourism was reported to be exceptionally strong in the fourth quarter, with hotel occupancy rates holding near record highs. Financial Developments According to a survey of senior loan officers at small to medium-sized banks in the District, demand for all categories of loans weakened somewhat since the last report. The decline was sharpest in the residential mortgage segment. Refinancing activity for all types of loans declined slightly. Overall credit standards were largely unchanged, though there was some tightening for consumer loans. Average loan rates declined for all types of loans, with rates lower at 25 percent of banks and higher at just 3 percent. In contrast, average deposit rates increased, with 27 percent of the participating banks reporting an increase and only 6 percent reporting a decline. Delinquency rates continued to edge up for consumer and residential loans, but they declined for commercial, industrial and nonresidential mortgage loans. Return to top Boston Philadelphia