September 10, 1986
The pace of economic activity in the First District remains sluggish. Retail sales are up from a year ago; but, while results are considered satisfactory, the buoyancy of earlier reports is lacking. Reports of domestic auto sales are mixed. Some dealers continue to enjoy excellent volumes; others have seen a slowing in sales. The manufacturing sector continues to experience disappointing order rates. There are no signs of a pickup. Price competition remains very fierce. Attention to cost containment seems to have intensified.
Retail
Sales results of First District retailers were fair to good over the
summer, with a strong back-to-school pick-up in late August. Most
contacts are close to plan for the year to date. Prices are quite
stable, even for imported goods, with the exception of furniture.
Inventories are not regarded as a problem by the retailers
contacted. Merchants remain optimistic about the second half of the
year.
Most respondents reported sales growth this summer, but at slower rates than a year ago. For these stores, the verdict on the summer season is "satisfactory." Back-to-school items have sold quite well, at least partly because poor weather has brought customers into the stores and increased interest in clothing for "transitional" weather. In addition to school clothes, sales have been strong for summer seasonal items, microwave ovens, and electronic (TVs, VCRs, stereos, radios, and computers).
Several contacts commented that consumer sensitivity to promotional activity has increased, and one voiced concern that too many merchants are chasing too few consumer dollars. At least partly because of such competitive pressures, merchants are holding prices relatively steady, in some cases reducing margins. One noteworthy exception is a furniture retailer; this store successfully passed substantial import price increases on to its customers with only a brief slackening of demand. The other merchants contacted have not seen significant increases in the prices of imported goods since the dollar began to decline.
First District merchants expect a strong second half because of tax reform and the robust New England economy. Firms targeting moderate income customers are pleased with the tax relief for their customer group, while stores with more upscale customers expect an end to consumer uncertainty to encourage spending.
Auto Sales
Reports on automobile sales at New England dealerships are mixed.
Sales of imports are generally strong. Some dealers also report
excellent sales volumes for domestic models, but others have seen a
recent softening in the market. Low-interest financing and the
appeal of popular new models are cited as the factors behind strong
sales, while slow sales are blamed on the vacation season. Dealers
not doing well anticipate a rebound after the summer season is over.
Truck and used car sales remain strong.
Manufacturing
The performance of the manufacturing sector remains lackluster.
Orders are flat to down. The defense business remains very good,
although it is no longer increasing. Commercial aircraft activity is
picking up. Sales of telecommunications equipment are up from a year
ago, although not as much as earlier. Furniture sales may also be a
little stronger than a year ago. However, sales to most industrial
markets are down, in some cases very substantially. There has also
been a pronounced weakening in the nonresidential building market.
A number of contacts are reducing headcounts. While attrition will take care of the excess in most cases, some layoffs may be necessary. For the most part, contacts are also taking a very cautious approach to capital spending. Several noted that it is very difficult to get projects approved; one respondent in the textile industry said that a payback period of less than two years is required.
Price competition is fierce, regardless of industry, and raising prices is seen as very risky. In some cases, the downward pressure on prices comes from domestic producers, in other cases from imports. A couple of contacts expressed concern about competition from Japanese-owned firms in the United States.
Faced with sluggish demand and strong price competition, the manufacturing respondents are emphasizing cost containment. Many also have recently been involved with acquisitions, divestitures and other changes in ownership and financial structure.