Beige Book Report: Boston
August 10, 1983
Business conditions are improving in the First District but the improvement has yet to be reflected in employment gains. For manufacturers the pace of recovery remains modest. Capital goods manufacturers in particular see only hints of an upturn. The retail sector, on the other hand, is enjoying very good sales. Both manufacturers and retailers are satisfied with current inventory-to-sales ratios. Prices remain well behaved.
Labor Market Conditions
Employment and unemployment statistics for June paint inconsistent
pictures of the strength of the recovery in the First District.
Unemployment rates in both Massachusetts and Connecticut in June
were below 7 percent. Rhode Island was not quite so fortunate, but
at just over 8 percent the state's unemployment rate was still well
below the national average. In contrast to the relatively favorable
unemployment situation, employment figures show no recovery. Nonfarm
wage and salary employment (seasonally adjusted) changed very little
in the first six months of the recovery and the June figures
continue this trend, with employment actually declining slightly in
the larger states. Durables and nondurables manufacturing as well as
nonmanufacturing have all been slower to recover in New England than
in the nation, but the biggest difference has been in durable goods
manufacturing. The relatively weak performance of the durables
sector may reflect the region's orientation to the production of
investment goods, which tend to lag the business cycle.
Manufacturing
Most manufacturing respondents report increasing business, but the
pace of recovery is still quite modest. Several noted that summer is
a difficult period in which to assess performance because of
vacation shutdowns. Demand appears to have increased most strongly
for automotive and housing-related products. The defense business is
good. Sales of packaging and various component-type products, which
are tied to the general level of industrial production, are also
coming back. Demand remains very weak for heavy capital equipment,
aerospace products and machine tool accessories. Overseas markets
are improving slightly buy the high value of the U.S. dollar is a
major impediment to exports. Japanese and European firms are said to
be making inroads into what have traditionally been markets for U.S.
products. Manufacturers fear that some of these markets will be lost
for the forseeable future.
Firms, even those enjoying good sales gains, are taking a very cautious approach to recalling laid off workers. Almost all of the workers who have been brought back so far have been direct production workers. Overhead and support staff levels are said to have been permanently reduced.
In general, manufacturers feel comfortable with present inventory levels. Inventories will increase as sales pick up but most of those contacted do not plan large changes. The major exception was a firm which had previously cut inventories to bare minimum; now as demand strengthens, inventories must be increased substantially. Others in this same industry, packaging, are said to be in a similar position. One manufacturer of machine tool accessories is also adding to inventories but for different reasons: demand is still very weak, so the firm is producing for inventory in order to, first, maintain employment and hold on to its skilled workforce and secondly, be able to respond rapidly when orders finally materialize.
Prices of materials and components remain stable. However, one manufacturer noted that he has recently seem more attempts to increase prices; several others spoke of how they had successfully "resisted" price increases from their suppliers. Resistance to price increases cuts two ways and some of these same firms have found their own attempts to raise prices successfully resisted. Lumber prices are said to have eased a bit; demand has stabilized and more mills have opened. None of those contacted is experiencing any shortages of supplies
Retailing
Retailers in the First District are enjoying a very good summer. The
strength is across the board—shopping centers and downtowns,
northern and southern New England, hard and soft goods. Sales of
seasonal products, such as air conditioning, barbecues, and lawn
furniture, have been especially strong. Big ticket items like major
appliances and TVs are also moving very well. Not only are people
buying, but one large appliance store finds that they are also
paying their bills faster than ever.
Retail inventory-to-sales ratios are satisfactory. According to one retailer, "I tell my buyers 'Buy, buy, buy', but sales have been so good that inventories never increase". For another, the ratio of inventories to sales is at the low end of the normal range. One chain reports that, despite very good sales, inventories are a little higher than expected; however, since the store plans a major promotional effort with heavy emphasis on having products in stock, the higher inventory levels are not problem.