Beige Book Report: Boston
October 23, 1984
Steady economic growth continues in the First District. Retailers report generally satisfactory sales gains. Manufacturers are experiencing good order rates, although a few sectors remain weak. Price increases remain moderate in both manufacturing and retail, although several contacts mentioned tight local labor markets. Deposit growth and demand for bank loans continue strong, although two nationally-oriented banking organizations reported some slackening in business loan demand. The outlook is optimistic, in spite of some concern that tax policy changes will occur after the elections, regardless of the outcome.
Retail
Retailers in the First District continued to make reasonable sales
gains in September, although performance relative to plan was mixed.
Several merchants expressed mild concern with inventory levels.
Price competition is widespread, and prices are holding steady or
rising only slightly.
Sales reported for September ranged from 8 to 14 percent above September 1983 on a comparable stores basis. The department store chain with 8 percent growth was under plan, but forecasts improved results for the next several months. The 14 percent increase was "way over" that discount chain's plan. These two chains also reported wide sales variance across stores—customers appear to be quite responsive to local promotions, upgraded store interiors, and local competition. Hard goods and toys continued to outpace sales of men's and ladies' clothing.
Inventories were generally "as usual," except when unanticipated sales changes left them above or below plan. Several merchants cited stiff competition in supplier and retail markets as explanations for stable or moderately increasing prices. However, markups have been maintained at normal levels. One chain had difficulty in finding new headquarters and warehouse space and faces an extremely tight local labor market.
Manufacturing
Manufacturing activity in the First District continues to expand.
Some sectors report greater strength than others. Firms or divisions
producing computers and semiconductors, automobile-related and (less
uniformly) housing-related products report healthy growth. Products
related to the commercial aircraft, utilities, and off-the-road
equipment industries remain in the doldrums. Exporting continues to
be dampened by the strong dollar while overseas plants are
performing satisfactorily.
While order rates and sales are rising, one respondent said backlogs had fallen because the firm had geared up production. The Purchasing Management Association of Boston also reported an easing of backlogs in September. Inventories are generally at satisfactory levels relative to sales.
Prices are rising very moderately, perhaps 1-5 percent. Respondents mentioned strong domestic price competition as well as imports (or the threat of imports) benefiting from the strong dollar. When suppliers attempt to raise prices "too much" (more than 3-5 percent), firms take their business elsewhere. Very tight input market conditions reported by a high technology firm have moderated recently. Wage settlements have also been moderate recently, reducing cost pressures. However, two firms complained of increasing tightness in the New England labor market for professionals. One has reinstituted an in-house training program.
Capital spending is up. The reasons are varied. Some firms are combining productivity improvement with expanding physical capacity. Others are making only labor-saving replacement investments because of existing excess capacity. Purchasing managers also indicated increased capital spending in September, and expect continued higher levels over the next 3-6 months.
Commercial Banking
Larger regional banks, who have been experiencing very strong
corporate loan demand since the beginning of the year, note a
moderation in that demand within the last 30 days. Consumer loan
demand continues to be strong, however. Smaller regional banks,
particularly those located in areas dominated by high technology
firms, report continued strength in both corporate and consumer
lending. Two contacts noted a definite increase in commercial real
estate investment and construction loan activity during the past 60
days.
No changes were reported on the liability side. Deposit growth continues to be strong. Intense competition for consumer time deposits has kept these interest rates high.
One large regional bank contact expected corporate lending to pick up in the next 30 days, while other respondents expected essentially unchanged conditions. Interest rates are expected to continue unchanged or to decline slightly over the next 30 days, but to rise slightly after the elections.