January 30, 1985
The expansion appears to have resumed in the First District. Retailers experienced reasonably satisfactory year-over-year increases in Christmas sales, although promotional activity reduced margins. Retail inventories are a little higher than desired. In the manufacturing sector, recent order experience varies considerably, with some firms reporting order increases, others flat order rates and a few decreases. However, all the manufacturers contacted have projected significant real gains in 1985. Manufacturing inventories are in line with sales, based on past experience; but several contacts are not satisfied with this performance and are pushing to lower inventory-to-sales ratios. There is no evidence of any pickup in inflation; recent price increases have been very modest and price expectations for 1985 seem to have moderated. Mortgage rates have been gradually falling for several months.
Retailing
Stores in the First District reported respectable but not
spectacular sales increases over the preceding year in December and
early January. Promotional activity reduced margins and inventories
are somewhat above plan. Most merchants expressed optimism about
sales growth in 1985.
Sales increases among the retailers contacted ranged from 6 to 10 percent above December 1983. The recent year-over-year increases are generally smaller than those recorded earlier in 1984, but most stores expected this because 1983 finished so strongly. Contacts with affiliates or branches in other parts of the country said New England stores showed the best performance.
Shoppers were very responsive to promotional activity and sensitive to value. One chain reported sales under plan everyday in December except for a big one-day promotional event. This event was so successful that the chain almost achieved its planned sales total for the month. In contrast, two other contacts said management decided against extraordinary promotional activity and settled for moderate increases in volume. Fine jewelry, cosmetics, menswear, furniture and other hard goods were the strongest performers; most apparel, shoes, and video/computer games lagged. Shopping was quite selective; while some stores did quite well, their neighbors saw very little traffic.
Manufacturing
Manufacturers are more positive about the outlook for 1985 than they
were a month or two ago. Many of the firms contacted saw orders
level off after last summer. In some cases, orders remain flat
although still above year earlier levels. Other firms, however, have
seen a resumption of growth and everyone contacted expects real
gains in 1985. Capital goods, particularly for certain process
industries, are one of the more notable weak spots. Among the
products doing well are nonresidential construction materials and
devices, automotive products and industrial automative products and
industrial automation equipment.
Price increases remain very modest for both inputs and outputs. The firms contacted are resisting increases from their traditional suppliers and are exploring new sources of supply. The firms are also finding strong resistance to their own attempts to raise prices. One contact noted that his list price is up but the actual price is unchanged. Wage increases are expected to be moderate in 1985.
Inventory-to-sales ratios are fairly good by historic standards. However, several respondents are not satisfied with this performance and have programs to bring inventories lower. Firms are also reported to be keeping a tight rein on hiring. Capital spending in 1985 is generally expected to be the same as or higher than in 1984.
Several respondents reported improvements at subsidiary operations overseas. Two firms noted that business in Mexico has picked up considerably; Brazil was also mentioned as an area of improvement. Reports on European operations were mixed.
Mortgage Market
Mortgage rates eased in December. Commitment rates for fixed-rate
mortgages fell 25-50 basis points in the month. Rates are about 100
basis points below September levels. Rates have also declined for
adjustable rate mortgages.