Beige Book Report: Boston
May 8, 1984
Business activity in the First District continues to expand. Retailers report satisfactory sales, and manufacturers are seeing a pickup in orders. While the expansion is widespread, it is not uniform—some sectors continue to outpace others. A few supply problems have materialized, but price increases are quite moderate. Demand for bank loans is strong and increasing.
Retail
Retailers in the First District reported sales growth on or better
than plan in recent months, although unseasonable weather combined
with a later-than-usual Easter to shift March sales into April. All
retailers contacted expect steady sales growth to continue through
the year. Supply problems have caused inventories to be higher or
lower than desired levels in some cases, but the deviations were not
considered serious. Prices are rising very little because of strong
price competition. 1984 capital spending by retailers contacted this
month will probably mirror 1983.
Merchants expected low sales in March because of Easter's late arrival, but sales fell below even modest plans because of consistently bad weather in New England. However, April sales rebounded to bring year-to-date sales back to plan or better. Reported increases for April ranged from 8 to 15 percent on a comparable stores basis. Aside from items the stores were actively promoting or downgrading, no specific products were noticeably stronger or weaker than average, except that one chain sold more lumber and building materials than they expected.
Two retailers have lower inventories than desired because some of their suppliers are not providing promised merchandise. In contrast, one department store's high inventory levels were attributed to excessive ordering by divisions faced with shipping delays. These problems are not serious; none of the merchants contacted planned any significant changes in inventory practices.
Most retail respondents this month reported capital spending plans for 1984 similar to last year. New store openings and remodeling and expansion of existing stores reflect continued confidence in steady regional growth.
Manufacturing
Business is very good, according to most of the manufacturers
contacted. Representatives of the metal working industry tend to be
less positive than other manufacturers, but they also report that
business has improved over the past several months. The strength is
widespread, although appliances and other housing-related products
and electronics are unusually strong and capital goods for the farm
and construction equipment industries are unusually weak. In
general, orders for capital equipment are picking up, but the rate
of recovery is varied. Several capital goods manufacturers report
that demand is behind schedule for this stage of the recovery;
customers may have ambitious investment plans, but they seem
unwilling to make large cash commitments. In contrast, a few firms
report unexpectedly strong demand with very tight delivery dates;
these firms are uncertain whether to gear up to accommodate what nay
be panic buying. Sales in Canada, the Far East and Europe are
increasing, but because of the strong dollar, the pickup is more
pronounced for sales of overseas subsidiaries than for exports.
Manufacturers are operating with lower inventory-to-sales ratios than in the past. Use of computerized inventory management techniques and, in some cases, simply more attention to inventories have made it possible to reduce inventory ratios without impairing customer service. Several respondents commented that because of lower inventory ratios, their need to borrow working capital was substantially below normal for this point in a recovery.
None of the firms contacted has seen evidence of widespread price increases. Pulp prices are said to be rising, but no other products were singled out. Semiconductors are in extremely short supply; but the problem is lead times not price increases. Wage increases are also reported to be moderate; several respondents expect increases in 1984 of about 5 percent.
Commercial Banking
Banking respondents report vigorous growth in loan demand. The
expansion is broad-based. Smaller banks are seeing strong real
estate and installment loan demand. At larger banks, business loan
demand is increasing, with medium-sized and New England-based firms
providing much of the strength. To a substantial degree, banks are
financing the increased demand with purchased funds rather than
deposit growth.