Beige Book Report: Boston
August 6, 1985
Business conditions in the First District have improved slightly in the past month. While retailers reported that June sales results were just fair, preliminary results for July were more encouraging. Inventories have been kept in check. Plans for the second half of 1985 remain optimistic. Reports from the manufacturing sector are mixed, but more positive, on balance, than a month ago. Most of the manufacturers contacted expect small real sales increases for the rest of the year. Manufacturing inventories are said to be in good shape, even at firms that have experienced weak sales. In the financial sector, commercial and consumer lending activity has increased; the demand for mortgages is strong but expected to level off.
Retailing
First District retailers reported that June, like the preceding
couple of months, was relatively slow. Although sales exceeded year
earlier totals by 2 to 8 percent, they did not meet expectations.
Sales have slowed across the board, with soft goods weaker than
durables and, within the soft goods grouping, clothing weaker than
home furnishings (such as bed and bath linens). However, the month
of July, to date, has been an improvement over June. This is
attributed, in part, to greater promotional activity.
Inventories are up only slightly as a result of the slowdown In sales growth. Merchants are keeping a careful watch on their inventory positions; one chain reported that substantial markdowns had been used to keep inventories lean.
First District merchants remain optimistic about the second half of the year. Despite several months of sales below plan, contacts have not lowered their plans for the remainder of 1985 because they have confidence in the New England economy's basic strength. Unemployment is low in the region and local retailers report that they continue to outperform many of their national affiliates.
Manufacturing
Reports from the manufacturing sector are somewhat more positive in
tone than a month ago. Business is fairly flat, but respondents
appear relieved that the situation is no worse. Most contacts expect
slight positive growth for the rest of 1985.
While there has been little change in overall order rates, demand for housing related products such as appliances and lighting is picking up. The capital goods picture is mixed. Some products, such as factory automation systems and construction equipment, are doing reasonably well. However, a lot of capital goods spending is for imports. Especially weak at the present time is the demand for parts and components from industries, like machine tools, that are losing market share to imports.
Most of the firms contacted are proceeding as planned with their capital spending programs. One contact, that had previously reduced its capital plans in response to weak demand, has made a substantial upward revision. Inventories are said to be in good shape - even at firms facing sluggish demand. A close watch is also being kept on employment levels. A couple of contacts have had small layoffs. One firm, enjoying strong sales, is relying on temporary help rather then permanent hires to meet the increased demand.
Financial
Financial institutions in the First District report that consumer
lending activity has either remained at the same level as last month
or increased slightly. However, all the institutions contacted
report an increase in automobile loans. These lenders expect demand
to remain at its present high level.
Commercial lenders report that demand for commercial loans has
increased. Some attribute the increase to the decrease in the prime
rate. Lenders expect the demand for commercial loans to continue at
the present rate or possibly increase further.
Demand for mortgages is high, but the lenders contacted expect it to
level off. Some lenders are predicting an increase in mortgage rates
soon.