Beige Book Report: Boston
November 1, 1989
Economic activity in the First District held steady in September. Most retail respondents experienced little sales growth. A majority of manufacturers reported that sales and orders are up modestly from year-ago levels. Prices are generally stable, and firms are concentrating on cutting costs through efficiency gains, in some cases by reducing their work force. A "conservative" outlook dominates.
Retail
First District retailers report mixed sales results through the
month of September. They found demand essentially flat relative to
year-ago levels for discretionary items, such as autos, major
appliances, outdoor equipment, and upscale apparel and housewares.
The movement of basic hardware and household goods improved, and
discount store apparel sales were reportedly brisk.
Wholesale prices are generally stable or up a few percent, with the exception of a sharp increase for autos. Because retail trade in upscale and big-ticket items remains highly competitive, heavy promotions and margin reductions have kept prices for such goods at or below last year's levels.
Retailers report continuing reductions in their operating expenses. Respondents have improved inventory management; thus, despite slow sales, all are comfortable with their current stock levels. At the larger outlets, computerized labor scheduling has become commonplace in just one year. Major efforts are now underway to "quicken response" to consumer demand, largely through sophisticated communications systems linking stores, warehouses, buyers, and suppliers. Layoffs of headquarters personnel have also reduced costs at some retail chains. Current capital spending plans generally aim at improving efficiency rather than expanding operations.
Must retailers surveyed have modest expectations for the upcoming Christmas season, reflecting the pace of current operations. One respondent expects a "battle," while another sees a "bumpy road" ahead. Two chains, currently doing quite well, are very optimistic about the fourth quarter.
Manufacturing
Among First District manufacturing contacts, sales are 3 to 10
percent ahead of year-ago levels. A majority of respondents report
that orders are also up by 4 to 10 percent, but a minority
characterize new orders as flat, down or disappointing. firms in or
serving the computer, auto, or financial services industries faced
weakest markets. Overseas demand continues stronger than domestic
according to several contacts.
Inventories are generally in satisfactory condition, and employment is stable or declining at most firms contacted. Several respondents plan to reduce employment even further—to put their companies in "fighting trim." Most contacts report achieving productivity gains by consolidating management and some manufacturing facilities.
Capital expenditures remain on target for most First District respondents. Among contacts discussing their plans for 1990, three expect capital spending to remain flat or decline while one anticipates a big increase. Current spending emphasizes equipment rather than plant; however, one machinery company is building R & D facilities in New England.
First District manufacturers report that input prices are rising less than 5 percent and that materials prices, other than those for copper and tungsten, have stabilized. While a few respondents were able to raise their selling prices by 3 to 5 percent, the rest report that their sales prices were flat to down. They cite competition and excess industry capacity.
The outlook among First District manufacturers ranges from "sober" to "cautiously optimistic." A minority expects a recession in 1990.
Residential Real Estate
Among First District realtors surveyed, a majority report some pick-
up in sales activity compared with levels prevailing during the
summer or at this time last year. They cite lower prices and
creative financing as the major explanations. Condominium prices
have softened most. Realtors expect the current pace of sales
activity to continue through the winter in the "best buyers' market
in twenty years," as one agent described it. Contacts at First
District firms outside the real estate sector expressed concern that
public perceptions regarding the weakness of the regional real
estate market are overblown and may prove damaging for other
industries.