Beige Book Report: Boston
September 16, 1985
Retail results in the First District are generally improving, but manufacturing remains in the doldrums. Retailers report that sales remain modestly below plan for the year to date, but year-over-year increases strengthened over the summer and early back-to-school sales appear promising. Inventories are flat to up. Merchants are optimistic about the rest of the year. Manufacturing activity is weak but not deteriorating; respondents view 1986 with apprehension but do not actually expect a recession. The financial sector remains relatively healthy. Vacancy rates for commercial real estate are rising rapidly in parts of the region.
Retail
Retail sales increases compared to a year earlier were stronger in
July than in June for most stores contacted, and stronger in August
than in July. Customers are reportedly very responsive to
advertising, but selectively so; items promoted with low prices are
sought out, but related merchandise, undiscounted, sells only as
usual. Some of the August sales increase was attributed to
promotional activity, some to a slightly below average August last
year, and some to improved consumer confidence. Appliances,
televisions, and home improvement items were said to be especially
strong, while sporting goods and physical fitness equipment
performed least well.
Inventories have increased in several stores, but only one contact attributed the rise to sales being below plan. The others said that increased competition now demands more inventories than were required in previous years to maintain customer service. Such additions to inventories, while planned, do raise store costs.
Back to school sales, only partially reported to date, are "promising." Most contacts expect sales during the rest of the year to remain well above year-earlier levels. They are purchasing and stocking on that basis.
Manufacturing
Almost all of the manufacturers contacted, a group including
representatives of high technology and traditional durable and
nondurable goods industries, report that business is below plan. In
some cases orders and shipments are also below year ago levels. The
deterioration appears to have stopped, however, and the adjustment
to lower than expected activity levels is largely completed. Several
firms have recently had layoffs, but these were small and no large
cutbacks are planned. All contacts are keeping close watch on
payrolls. Inventories are very lean; several contacts commented that
their customers also have very tight inventories.
Capital spending is falling below plan at a number of companies because of the disappointing order and shipments levels. One contact reporting a substantial scaling back of capital expenditures said that no change has been made at the corporate level, but individual managers did not think activity levels justified the planned expenditures. For most respondents, capital spending will be less in 1986 than in 1985. The exceptions were high technology companies with major product development programs.
All respondents regard the outlook for 1986 as highly uncertain. The consensus view, however, is a continuation of present levels of activity. While respondents would like to do better, such an outcome would not require them to make major inventory or employment adjustments.
Finance and Real Estate
New England banks are benefiting from a relatively strong and well
balanced regional economy. This is one reason the region has been
spared the bank failures suffered in other parts of the country.
Loan demand is said to be strong; deposits are up.
There is excess office and light manufacturing space in the suburban Boston and southern New Hampshire areas. Vacancy rates are rising and renters can get several months of free rent. The excess is due to a lot of space coming available just as the slowdown in high technology occurred.