September 8, 1987
The First District economy continues to expand, according to reports from area merchants and manufacturers. Retail sales increased modestly as fine summer weather reduced the frequency of shopping trips while boosting sales of seasonal items. For manufacturing contacts, orders have been running at an improved rate for the past three to six months. A number of manufacturers expect increases in profits in the near term because of increased sales volumes, cost- cutting efforts and tax changes. While manufacturers generally do not see evidence of rising prices, retailers expect prices to rise sharply in the spring because of higher import prices.
Retail
Retail sales in the First District expanded modestly in July and the
first half of August. Excellent summer weather has boosted sales of
seasonal items but reduced the frequency of shopping trips. Among
the merchants contacted, recent sales change relative to a year ago
ranged from minus 5 percent to plus 12 percent on a comparable
stores basis. The one store with lower sales is still well ahead of
last year on a year-to-date basis. A few stores reported that
extensive markdowns (accompanied by a drop in margins) had
contributed to their sales increases. Inventories are up somewhat in
several stores. Retailers are having difficulty attracting and
retaining employees because of the tight New England labor market.
Prices are said to be rising moderately, but are expected to climb more significantly next spring because of imports. The decline of the dollar, quotas for apparel items, and political disruptions in some supplier countries have combined to raise prices and reduce the availability of foreign goods. Retailers continue to seek domestic alternatives.
Plans for new store openings next year are similar to this year. Budgets for next year, however, project smaller sales increases than have been realized to date this year.
Manufacturing
For most First District manufacturers, orders have been running at
an improved rate for the last three to six months. Computer and
fabricated metals firms cite the strongest gains relative to a year
ago. Only a minority, in electrical equipment and machine tools,
report orders below 1986 levels. Exports are said to have played
little role in the improved situation; several respondents noted
that foreign markets are served from overseas subsidiaries.
Inventories continue to be carefully managed and are generally satisfactory. Employment appears to be stabilizing. Where employment levels were falling through attrition, the pace has slowed, and at several firms employment has risen. Contacts granting recent wage increases report that these pay raises were at or below last year's levels.
For most respondents, capital spending is at least equal to its 1986 level, and in several cases is at its highest level in years. Much capital spending continues to be driven by technical innovation, but some firms are building new plants.
Input prices are generally steady, although one respondent mentioned that prices of imports from the Far East have been rising at an accelerating pace for the last six to nine months. Other firms noted rising energy and steel prices. Sales prices of First District respondents have been stable. While a couple of firms were able to increase prices modestly (3 percent) early in the year, others continue to sell some products below list.
A member of First District manufacturers expect improved profits in the near term. They cite increased sales volumes, productivity gains, cost-cutting programs and tax changes. None of the contacts expressed concern about inflation or the possibility of a downturn in the near future.
First District Economic Indicators Through June
The most recent economic indicators for the First District were
mixed. Nonagricultural employment in the New England region, which
closely overlaps the First District, declined in April, May and
June. Although the moat recent reports from manufacturing
respondents indicate that employment levels are stabilizing, the
manufacturing sector was responsible for most of the decline in
nonagricultural employment. Construction employment also fell in the
second quarter; however, housing permits and the value of
nonresidential contract awards remained at high levels.
Despite the sluggish employment performance, the New England unemployment rate fell to 3.3 percent in June. Help-wanted advertising in June was far above the levels in June 1986 and earlier in 1987. Advertising picked up in the Providence area, in particular.