March 13, 1984
Economic activity continues to expand in the First District. Retailers report strong sales gains and they are optimistic about the rest of the year. Several plan major capital expansions. Retail inventories have increased, but this is considered necessary to achieving ambitious sales targets. Manufacturers are seeing substantial order increases. The improvement is broad-based, although machine tool manufacturers continue to operate at depressed levels. Manufacturing respondents report that both their own inventory-to-sales ratios and those of their suppliers are low and likely, to stay that way. A lot of attention is being given to inventory management. Capital spending plans have increased; the emphasis remains on productivity enhancement.
Retail Retailers in the First District report strong performance totals at the close of fiscal year 1983 and continuing through February. Hardgoods remain the best sellers Inventories are somewhat higher than last year, but this is not a cause for concern. All the merchants contacted are optimistic about 1984; some have significant capital spending and expansion plans.
Retail chains in several very different lines of business reported very strong earnings and sales increases. In two cases the fiscal year ending in January brought record profits. The largest sales Increases were for hardgoods, but apparel also exceeded plan in several stores. Overall sales gains for the year and February ranged from 8 to 19 percent. Inventories in some stores are above last year, but this is seen as a service improvement and a necessary part of planning for aggressive sales growth. The outlook for the year is generally very good. One contact has a store expansion scheduled for late this spring; two major chains plan to increase substantially their number of stores in the coming year.
Prices are increasing only slowly. According to one merchant, prices this spring are 2-2 1/2 percent above last year; another said that of an 18 percent sales growth rate, fully 95 percent was increased unit sales, not prices.
Manufacturing
Manufacturing orders and shipments are increasing. With the
important exception of machine tools, most of the manufacturers
contacted describe business as very good. The strength is quite
general, but some high technology products and materials and
equipment for the auto, appliance, defense and electronics
industries are selling particularly well. The machine tool industry
has also seen an upturn but it has been modest and from an extremely
low base; foreign competitors have made dramatic gains in market
share in this industry in the past two or three years.
Manufacturers respondents are working with much lower inventory-to-sales ratios than in the past, and they are committed to keeping these ratios low. Their suppliers are doing the same. To satisfy customers with lower inventory ratios requires careful management and the firms contacted are asking their customers and are being asked themselves to forecast more precisely when components are needed. So far, the lower inventories have not created any significant supply problems, although there is a shortage of semiconductors.
Capital spending plans have increased. In a February survey of New England. purchasing managers, 74 percent said their companies would increase capital purchases over the next 3 to 6 months. This is the highest percentage in four years. The emphasis in capital spending continues to be on productivity enhancement and cost saving rather than on expanding capacity, although several respondents are building new offices and some of the machine tool companies are consolidating operations to cut fixed costs.
Housing and Mortgage Rates
Homes are selling at a very vigorous rate, with one realtor
describing the situation as "exceptional." Housing inventories are
quite low in much of Massachusetts and Connecticut and prices are
rising in these areas. In Rhode Island prices are more or less
stable, but there too demand is strong and increasing.
Mortgage rates eased slightly from December to January. The effective rate in January on a 25 year mortgage with 20 percent down was about 13 1/2 percent. Adjustable rate mortgages have become much more popular in the past year and a half.