Beige Book Report: Boston
August 3, 1987
The pace of economic activity in the First District picked up in early summer. Recent retail sales results have been well ahead of year-earlier levels and equal to or better than plan. Manufacturers are experiencing encouraging increases in orders and shipments, although they remain cautious about the future. Reports of price increases are more common. Several retail contacts expect rising input costs to lead to higher prices next year. Manufacturers are seeing modest rises in materials prices and are encountering less resistance to increases in their own prices. Reports from the housing market contrast with the more positive tone from the retail and manufacturing sectors: in many areas in the region the residential market is slower than normal for this time of year.
Retail
Retail sales in the First District were equal to or better than plan
in the early summer. For the merchants contacted, sales through June
ranged from 6 to 40 percent ahead of a year earlier, with early
returns for July suggesting a continuation of current trends. These
results are on plan or 3 to 4 percent higher than planned. The
strength is fairly general across product lines and geographic areas
within New England.
Two retail respondents have purposely built up inventories in recent months. Although the buildup has successfully bolstered sales, they are nervous about the costs and risks involved in heavy inventory investment and, therefore, are reexamining their inventor policies.
Pricing remains very competitive, especially at the low end of the market. However, several contacts expressed concern with increases in vendor prices. Although retail price increases remain in the 2 to 3 percent range, this pace shows signs of accelerating during the coming year.
New England retailers are optimistic about the coming year. They expect the positive results to date to continue through the close of the year and are budgeting for comparable or slightly more conservative increases next year.
Manufacturing
First District manufacturers report moderately encouraging increases
in orders and shipments. However, they are not convinced that the
recent pickup will last. Producers of specialty textiles and
computers and other nonelectrical machinery cite some of the
sharpest gains. Paper and appliance manufacturers are experiencing
more modest increases, while product lines dependent on the auto,
housing, and utility industries are "slow." Firms serving the
aerospace industry give mixed reports.
Most contacts stress the continuing need to cut costs, improve quality, and avoid becoming overextended. Accordingly, inventories, which have been slim for some time, are being squeezed even further. While capital spending is generally running above last year's level, its primary purpose remains improving efficiency and quality control. Some spending is the result of plant closings and consolidation. However, a small part represents bricks-and-mortar expansion within New England—a relatively new development.
First District manufacturers are reluctant to hire additional workers. Two contacts indicated that they would prefer to invest in more productive equipment, while another is only hiring on a temporary basis. While one respondent is planning a large layoff, for the most part employment levels are stable or rising slightly.
Most contacts report modest increases in materials prices, particularly pulp, paper, aluminum, lead, copper, and steel. In contrast with the recent past, respondents are now finding it easier to pass these costs on to customers and to make small (2 to 4 percent), "selective" price increases stick.
On the whole, First District manufacturers expect a reasonably good year, with improvements in profits ranging from small to significant. In general, they attribute this improvement to their own strict attention to costs and to the effect of the dollar's depreciation on reported profits rather than to any marked increase in economic growth.
Residential Real Estate
The residential real estate market in most parts of the First
District has experienced a slower than traditional summer season.
Business has been picking up recently in some sections, however. The
market is said to be flooded with over-priced, lesser-quality
properties and, as a result, selling times have increased. Buyers
have become better informed and are resisting over-inflated prices.
Many property owners are reluctant to lower asking prices on
properties that are not selling, but others are becoming more
responsive to the market and reducing prices accordingly. Properties
that have sold recently have often had their prices cut.