Beige Book Report: Boston
March 14, 1990
Contacts in the First District report that economic condition continue to be mixed. Half of the manufacturers contacted are experiencing increases in shipments and orders compared with early 1989, while the other half face declines. Retailers report sales below expectation but sense a more stable business climate. Several contacts suggested that recent newspaper reports focusing on difficulties in the region's construction, real estate, and banking industries have led to exaggerated impressions of New England's economic slowdown.
Retail
A panel of First District retailers report February sales as
generally weak and below planned levels. They attribute part of the
recent weakness to weekend snowstorms and part to continuing
consumer caution. But the heavily promotional climate of the recent
holiday season has apparently eased in much of the industry. The
respondents see business conditions as stabilizing, and their mood
is brighter now than it was in January.
Respondents say inventories are generally in line. Some have excess stocks while at least one plans to increase inventory levels. A few retailers report that creditors - banks, factors, and vendors - have become more hard-nosed; others have observed no change in credit conditions. In the area of fixed investment, most retailers say they have scaled back their plans. Some firms are nevertheless adding new stores; and several large malls, in various stages of completion, are moving forward. Nonetheless, the reduced buoyancy of the regional economy and slowing cash flows have made the industry cautious and conservative.
Retail contacts see regional economic conditions, and thus their own business, continuing to stabilize over the next few months. They expect this stabilization to lead to an upturn in consumer confidence.
Manufacturing
According to First District manufacturing contacts, demand
conditions vary considerably across industries and products. Half of
the respondents indicate that shipments and orders are above last
year's levels-by as much as 25 percent in one case. For the
remainder, sales and orders are down - from marginally to 12
percent. (Although the number of contacts where sales are growing
about equals the number reporting declines, those facing soft demand
tend to be the larger firms.) Demand for instruments, auto parts,
paper and computer-related goods is weak. Niche or new products and
aircraft-related equipment face stronger demand. Overseas markets
continue stronger than domestic but are growing more slowly than
they were a year or so ago.
Inventories are generally described as satisfactory. However, one- third of the respondents expressed some concern about inventory level if shipments continue below expectation.
Most First District respondents expressed relief that materials prices are flat or declining slightly. Two firms mentioned recent increases in copper and petrochemical prices, however. In the case of their own selling prices, contacts are reportedly tailoring their pricing strategies to fit specific markets. Almost one-half of the firms are offering discounts in those markets where competition is particularly stiff; however, an equal number reported price increases.
Employment levels are reportedly flat to down for most respondents. Several firms have made or plan substantial layoffs. By contrast, two manufacturers have recently increased employment, but their gains are small compared with the layoffs reported elsewhere.
One-third of the respondents plan capital expenditures 15 to 50 percent below 1989 levels; however, an equal number expect to increase capital spending - in some cases, quite significantly. Investment goals include retooling for new products, expansions and a few new facilities.
Manufacturers were divided in their assessment of the future. Almost half of the manufacturing contacts expect faster growth in 1990 than occurred in 1989 (with anticipated sales gain ranging up to 12 percent and profitability improving even more). The balance foresee sluggish growth at best. Members of this more pessimistic group describe themselves as "sober" and anticipate a "rough" couple of years for themselves and their industries. Several respondents (from among both optimists and pessimists) suggested that the state of the regional economy "feels worse than it really is" and that the "doom and gloom talk is exaggerated.