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Beige Book Report: Boston

December 1, 1986

Economic activity in the First District remains sluggish. Retail markets in the region softened in October and were mixed in early November; nonetheless, sales remain solidly ahead of last year. Extensive promotional activity is holding down prices. Manufacturers continue to report that business is slow, with no evidence of a pickup. Price competition from both domestic and overseas producers is said to be very intense. Respondents are devoting much attention to cost containment.

Retailing
Several retail contacts reported sales below plan in October but above last year. November to date is much better in some stores, but similar to October in others. Year-to-date sales growth figures are generally better than those for recent months. The weakening occurred in most product lines, although clothing categories were off more generally than appliances and home electronics. Inventories are high in some stores but they are not reported to be a serious problem.

Prices have changed very little because retailers perceive a need for persistent promotional price reductions. According to one contact, "Customers are looking for victory every time they go into a store." In a similar vein, a department store representative reported opting for more and shorter sales events rather than a few traditional "big seasonal sales" to satisfy consumer demand for more reduced-price merchandise. The decline in the value of the dollar may force some price increases, however. A contact from a discount chain expects vendor prices to rise fairly soon because of exchange rate changes; the chain imports a substantial fraction of its products. This contact also expects to be buying more goods in the United States in response. But neither of these changes has yet occurred.

First District merchants are moderately optimistic about the remainder of the year. They expect "pretty good" Christmas sales, finishing out the year with sales growth between 5 and 7 percent on a comparable stores basis.

Manufacturing
Manufacturing activity in the First District remains slow. Contacts have not experienced any deterioration in orders in recent months, but with one exception they see no improvement. Aerospace, consumer electronics and housing-related products are reported to be doing well; the general industrial market is flat to down; the demand for construction materials and supplies is down, apparently in response to weakness in nonresidential construction. The decline in the value of the dollar has been of no discernible benefit to most of the firms contacted.

Cost containment is receiving much emphasis. Most respondents have ongoing inventory control programs that are enabling them to operate with lower inventories than in the past. Employment levels are being reduced, even at firms with satisfactory sales results; more attention is being paid to the efficiency of white collar personnel. Capital spending plans for 1987 are conservative; contacts planning to reduce spending outnumber those planning increases.

The manufacturers contacted either report no increases in input prices or report increases in the 2 to 4 percent range, which they expect to offset with efficiencies in purchasing procedures. Several respondents have recently instituted increases in their own prices of about 3 percent. However, competitive pressures are said to be very intense, with domestic competitors mentioned as frequently as overseas producers.

New England Economic Project Outlook
The New England Economic Project (NEEP), a nonprofit corporation made up of New England businesses and educational institutions, has just released economic projections for the six New England states. Taken together, the six state forecasts call for employment growth in the region to accelerate somewhat in 1987, then slow again in 1988. The composition of growth is projected to change. While nonmanufacturing industries will continue to account for most of the new jobs created in the region, the manufacturing sector will not be the drag on the region's economy that it was in 1985 and 1986. NEEP forecasts that manufacturing employment will increase, albeit very modestly, over the course of the next two years. Unemployment rates in the region will average a little below 4 percent in 1987, slightly higher in 1988. Per capita incomes in the region are projected to increase relative to the national average.