Beige Book Report: Boston
December 5, 1985
The First District economy appears to be in a holding pattern. While retail sales continue to exceed year ago levels, increases have been below plan in some cases. Retailers are anxious about the critical Christmas period. Manufacturing respondents report that sales are flat, continuing the experience of the past five or six months. One significant change has been a falling off in the demand for products associated with non-residential construction. Price increases are said to be negligible. Manufacturers expect 1986 to be very similar to 1985. The First District real estate market is healthy, but entering a seasonal slowdown. Listings fall short of demand for most realtors contacted. However, the market for condominiums is said to be saturated.
Retail
Retailers in the First District report that sales in October
exceeded those in October 1984 by 4 to 17 percent; but for several
contacts increases were smaller than expected. Merchants attribute
their somewhat disappointing performance to a lack of consumer
enthusiasm, which they fear will also affect November and December
results. However, very early and incomplete November figures show
sales for some merchants exceeding plan.
Areas of strength in October included video computers, other home electronics, toys, records and tapes, high quality ladies' sportswear, and women's accessories. Furniture was weak. The atmosphere is highly competitive, although the prices of high quality items are said to be holding up fairly well. Substantial markdowns have affected margins for some respondents.
Inventories are reported to be at or below planned levels, except for one retailer that "over-reacted" to short supplies in the last Christmas season. In spite of favorable current positions, several chains said sizable inventory reduction sales were likely in January, given the current outlook for Christmas.
Retailers are increasing staff as usual for the Christmas season. Some reported that low unemployment rates have forced them to offer recruiting incentives to current employees, raise wages, or reduce the quality of their new hires in order to staff up. None of these adjustments is said to pose serious problems.
Uncertainty about the volume of Christmas season sales is pervasive, although everyone expects sales to grow. According to one contact, "we're holding our breath and hoping for the best."
Manufacturing
Manufacturing activity in the First District is flat to down. Most
respondents report that sales are about the same as a year ago or
slightly lower; this situation has persisted for some months. One
contact reports that the auto industry's demand for materials and
components is quite strong but attributes this strength to Detroit's
ambitious production plans for the fourth quarter and questions
whether the strength will persist. Another contact, a manufacturer
of electrical equipment, reports a softening in sales to the auto
industry. Demand for housing related products is said to be strong
but flat. Demand for products related to nonresidential
construction, which had been strong, has recently weakened. Sales of
a variety of capital goods are disappointing for this stage in an
expansion. Several firms report that overseas subsidiaries are
experiencing stronger sales than domestic operations.
Small layoffs have recently occurred at some high technology firms. However, most of the firms contacted have adjusted to current activity levels and can continue without further cutbacks in personnel. Although one respondent will be increasing capital spending substantially in 1986, most are reducing expenditures. Most contacts face heavy price competition and have been unable to raise their prices; large firms, in turn, are refusing to accept increases from suppliers.
First District manufacturers expect 1986 to be a difficult year. While most think their own firms' performance will be about the same as in 1985, they seem to have revised downward their expectations for the economy as a whole.
Real Estate
The New England residential real estate market remains healthy
despite the start of a seasonal slowdown. Price movements are mixed.
While Boston agents claim that prices are stabilizing, agents in
other parts of the region report that prices are still climbing.
Listings, as reported by most, are short of demand. Multi-family
buildings, in which a family lives in one unit and rents out the
others, are especially popular. More people are buying lots with
intentions of later building, as they see appreciation rates out-
running building costs. Condominiums have become less popular. The
condominium market is said to be saturated; as prices approach those
of free standing homes, buyers are opting for the latter. Tighter
mortgage qualification standards may be hurting some potential
buyers, particularly first timers.
New England Economic Project Outlook
The New England Economic Project (NEEP), a non-profit corporation
comprised of New England business firms, government agencies and
educational institutions has just released its semi-annual forecast
for the New England economy. The forecast is based on state models
developed by a local-area consulting firm and managed by NEEP
representatives.
According to the NEEP forecast, New England's employment growth will be considerably slower in 1986 than in the past two years. Even so, growth is expected to be sufficient to maintain the region's unemployment rate at its current level of roughly 4 1/2 percent. New England's growth will also continue to surpass the nation's.
All of New England's employment growth in 1986 will come from the nonmanufacturing sector. Services, trade and finance will continue to expand at healthy rates. Construction employment, on the other hand, is forecast to level off. Manufacturing employment will be flat, with little change expected for most individual manufacturing industries.