Beige Book Report: Boston
October 23, 1986
With the exception of defense-oriented firms, First District manufacturing continues to be sluggish. Foreign sales are picking up for most exporters. Retailers in the region generally saw improvement in September but results were mixed in early October. Prices are stable or declining for manufacturers and rising moderately if at all for retailers. New England's labor markets remain tight.
Retail
Retail contacts reported sales in September well ahead of last year
on a comparable stores basis. The first week in October continued
this strength in some stores, but showed weakening in others,
especially in stores carrying general merchandise. Hard goods are
selling better than soft; one contact reported this had an adverse
effect on profits because their margin is higher on soft goods.
Inventory levels are varied but were said to pose no serious
problems.
Prices remain "remarkably stable." Vendor price increases are selective rather than across-the-board, and those occurring recently were in a moderate range of 1 to 3 percent. While prices of some imported goods have risen, contacts said the increases to date have been modest. Competitive pressures keep retail prices in line with vendor prices.
Unemployment remains low in the region. Some merchants have increased starting wages in order to recruit employees, but several expressed the opinion that the problem is not one of wage levels but simply a shortage of bodies to fill "low-skill" openings. Concern is growing about whether enough temporaries will be available to support holiday season sales. But low unemployment has a positive side as well; New England retailers are optimistic about sales in the remainder of the year, citing the region's low jobless rate ad high incomes. Those with branches or affiliates elsewhere report that their northeastern divisions continue to outperform others.
Manufacturing
The District's manufacturers continue to struggle for any gains--
except in defense-dependent businesses. Government demand for
machinery and fabricated metals is fairly good, sometimes better
than expected. However, sales of machinery and tools to the auto,
commercial aircraft, and oil industries are weak or deteriorating.
Sales of chemicals and plastics are flat. Instrument sales are mixed
with medical instruments showing most strength. Computer makers
indicate that sales will rise only modestly this year with office
automation performing best. Almost all respondents report an
increase in foreign sales, especially to Europe. For several,
exports represent the sole bright spot.
While some firms alluded to tight labor markets, most are holding employment constant or are letting it fall through attrition. A few layoffs have occurred or are contemplated. Respondents foresee wage increases of 3 to 6 percent in 1986. Capital spending also remains minimal and is focused on maintenance, consolidation, or restructuring—not expansion.
Keen competition and oil price declines have combined to keep prices stable or falling. Most firms are emphasizing cost containment, and one reports sharing technology with suppliers to reduce costs. Input prices, including imports, generally remain level as well; exceptions include nickel (because of depleted stockpiles) and semiconductors (because of the recent anti-dumping pact). Although most firms expect few price increases, one suggested that possible cost reductions are almost exhausted.
Only the tool makers have seen a recent pickup in orders. Others, including defense contractors, foresee no major changes. A few respondents cite tax reform as a current concern.
Retail Estate
Reports of residential real estate activity in New England vary
widely, with some indication that conditions are moving toward
normal after the fast pace of the last few years. While some
agencies, particularly those close to Boston, claim that home sales
are down, others say that business is strong. Where activity is
booming, buyers exceed listings and prices are still climbing.
Agencies facing slower activity, however, report that high prices
are reducing the number of buyers and causing them to take more time
in making purchasing decisions. Condominiums continue to do well.
Vacancy rates for commercial real estate in New England's urban centers have risen as new construction has recently come on line in these locations. Retail space in suburban shopping malls, however, appears to be in demand.