Beige Book Report: Boston
June 21, 1989
Manufacturing activity in the First District remained soft in April and May, with new orders showing little growth from year-ago levels. Retail results were mixed, but customers are characterized as cautious. Some firms have cut capital spending plans; others are proceeding to expand operations. Price increases, except for selected materials, are reportedly moderate. A new forecast for the region predicts continued job growth through 1991, albeit slowing in 1989 and 1990.
Sales
First District retailers report a variety of sales results for May.
Some respondents enjoyed double-digit increases from year-ago
levels, while others saw their receipts decline. In general,
retailers find customers becoming cautious. Moderate-priced,
discounted, and heavily promoted items are doing especially well.
Sales of men's clothing have weakened, while women's clothes are
bouncing back.
Prices are generally stable, respondents report. While prices of some hardware items are edging higher, promotions are pulling other prices down. Profits are also steady, as sales increases or cost cuts have offset declines in gross margins. Labor coats have also stabilized. While contacts still consider the labor market tight, they report lower turnover rates and an improvement in the quality of new hires.
Half the retailers surveyed expressed optimism about the remainder of 1989. These firms continue to expand, but with caution. Financing is available, and real estate developers are actively seeking tenants. Nevertheless, several contacts view New England retailing as overbuilt and highly competitive. They worry that firms that took on large debts during a corporate restructuring were weakened in the process. One wholesaler also noted a rise in receivables and expressed concern over the strength of its small retail customers.
Manufacturing
For many First District manufacturing contacts, business activity in
April and May slowed from its previous pace. However, several firms
sensed a modest pick-up at the end of the period. Sales ranged from
12 percent above to 12 percent below year-ago levels, while orders
were generally flat. Demand for construction-related products and
most defense and consumer goods has been relatively weak. By
contrast, industrial demand has stayed relatively strong, and
computer-related activity may have stabilized recently. Exports also
remain strong. Half the firms expressed concern about the dollar's
recent rise, but the others believe that foreign demand for their
products is not price-sensitive.
As a result of the recent softness and continuing productivity gains, employment levels are generally flat to down slightly. Observers in defense-and computer-related industries expect "downsizing" to continue. Similarly over half the respondents have pared capital spending plans by 10 percent or so from previously forecast levels. Capital purchases include buildings as well as equipment, with some expansions located in New England. Inventories remain satisfactory.
First District manufacturers continue to complain of increases of 10 percent or more in the cost of certain materials, including nickel and other metals, plastic feedstocks, packaging materials and ball bearings. Most contacts say that they cannot pass these cost increases though to their customers. A few have succeeded raising their sales prices between 1 and 5 percent.
First District manufacturers describe their outlook as "guarded." Most expect GNP to be virtually flat for the rest of the year; however, several contacts believe that their own firm will outperform the economy.
Residential Real Estate
Residential real estate sales slowed in May and are below year-ago
levels. Realtors believe that concerns about the regional economy
have contributed more to this weakness than have higher interest
rates. Nevertheless, both factors have reduced demand at a time when
the inventory is large because of previous heavy building.
The fall-off in sales is concentrated in condominiums and mid-priced homes ($150,000 to $250,000), but one contact reported price declines at the high end of Boston's suburban market. Most realtors foresee stable residential sales through the summer, with a small seasonal improvement possible.
The New England Economic Project (NEEP) held its semi-annual outlook conference in late May. The NEEP forecasts for the New England states call for nonagricultural employment to grow more slowly in 1989 than the 2.1 percent pace of 1988. Mirroring the national outlook, further slowing is expected in 1990, followed by a pickup in 1991. Nonmanufacturing jobs will continue to expand over the forecast period, while manufacturing employment will shrink until late 1990. Although unemployment will inch up, NEEP forecasters expect the region to remain prosperous, with unemployment rates well below and per capita income considerably above the national average.