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Federal Reserve Districts

Second District - New York

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Full report

Economic growth in the Second District has moderated since the last report. Major retailers report that sales were below plan in September and early October, but seemed to be picking up at mid-month. The New York area's office markets continued to tighten in the third quarter, but housing markets were mixed. Regional purchasing managers' reports indicate a pickup in manufacturing activity in September. There was no evident pickup in price pressures in the District. Finally, local banks report that both loan demand and delinquency rates were steady.

Consumer Spending
Most major retailers in the region report that sales were well below plan in September and early October, though most note an incipient pickup in business in mid-October. Compared to a year ago, same-store sales in September ranged from a 4 percent decline to a 6 percent rise. The weakness was largely concentrated in seasonal merchandise and attributed to unseasonably warm weather; similarly, much of the mid-October pickup was attributed to the onset of cold weather. Still, most contacts sense some weakening in underlying demand. Much of the weakness was concentrated in apparel; only one contact reported a discernible impact from New York State's week-long waiver on moderately priced clothing (in early September), but even in that case, monthly sales were soft. A few retailers noted continued recovery in sales of home goods.

Despite the recent sales slump, inventories generally remain at satisfactory levels. Although there are a few pockets of surplus seasonal merchandise, these are expected to be depleted once the weather cools. One contact, however, expressed concern that a repeat of September's slump would be "disastrous". Some retailers report less discounting than a year ago, while others report increasingly aggressive markdowns due to the recent softness; on balance, though, merchandise costs and selling prices are said to be essentially flat. There has been no noticeable increase in retail wage pressures (nor any reported effect from the recent minimum wage hike); however, most retailers note the real test will come in the next few weeks when most of the industry's holiday-season hiring is done.

Construction and Real Estate
Office markets continue to tighten across most of the New York City metro area. Manhattan's office availability rates fell during the third quarter�Midtown's edged down from 11.3 percent at the end of June to 10.7 percent at the end of September; Downtown's fell from 21.0 to 19.2 percent; and Midtown South's tumbled from 9.5 to 7.3 percent. Rates also declined in Fairfield and Westchester Counties but edged up on Long Island. Meanwhile, asking rents have begun to accelerate in Downtown Manhattan and Fairfield County, and continued to rise at a 5-6 percent pace in Manhattan's Midtown and Midtown South areas. In Long Island and Westchester, rents remained steady.

The region's housing market has been mixed since the last report. Builders in upstate New York say the market remains soft but has apparently bottomed. Construction activity reportedly remains weak in the Rochester, Buffalo and, especially, Syracuse areas; however, there has been some pickup in the Albany area and some pockets of strength are reported outside the major metropolitan areas�for example, in the mid-Hudson Valley, Saratoga and the Finger Lakes regions. Homebuilders in downstate New York, especially Long Island, say the market remains strong, especially at the high end. Similarly, while New Jersey builders specializing in mid-priced homes give mixed reports on the market, those at the high end report strong demand; remodeling activity remains exceptionally strong.

New York State Realtors report that the market for existing single-family homes cooled a bit in the third quarter�unit sales were down 4 percent from a year ago in August, with most areas posting declines. Average selling prices were up 5 percent statewide, with all of the increase concentrated downstate. However, a large Manhattan broker reports that co-op and condo prices retreated in the third quarter following a springtime surge; the average price per room is little changed from a year ago.

Other Business Activity
Regional purchasing managers report broad improvement in the region's manufacturing sector, along with an absence of price pressures in September. Buffalo purchasing managers report that new orders accelerated further in September, while production activity continued to expand at a brisk pace; however, there was little change in hiring activity and commodity price pressures remained modest. Similarly, Rochester purchasers report a sharp improvement in general business conditions but a dip in employment and stable prices. New York purchasing managers in both the manufacturing and non-manufacturing sectors report that business activity accelerated in September and that prices paid for goods and services remained flat.

Regional labor markets continue to improve gradually. New Jersey payroll employment, which is growing at a roughly 1.5 percent pace, surpassed its pre-recession peak in September. Job growth remains mixed in New York, with upstate continuing to lag the New York City area. Eastman Kodak, which employs nearly 35,000 people in the Rochester area (about 7 percent of the local workforce), announced that it will cut 10 percent of its jobs this year, including 20 percent of management jobs.

Financial Developments
According to a survey of loan officers at small- and-medium sized banks in the District, overall demand for loans remained relatively stable during the past two months, though demand for consumer loans increased slightly. Refinancing continued to increase. Willingness to lend increased, with 29 percent of bankers reporting more willingness to lend, and none reporting less. Credit standards on all categories of loans remained unchanged over the past two months.

Interest rates decreased for all types of loans�most notably for residential mortgages, with 62 percent reporting lowering rates; however, deposit rates remained mostly unchanged. Delinquency rates remained stable over the last two months.

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Last update: October 29, 1997