May 2, 1990
First District economic activity continues at a slow pace. Manufacturing activity varies considerably by industry, but most contacts report slowing orders compared with previous months. Retail sales have stabilized, but respondents expect another difficult year. Residential real estate markets remain slow, with sizable inventories of unsold homes. According to industry contacts and media accounts, small businesses are experiencing (or anticipate) difficulty securing credit.
Retail
With Easter late this year, New England retail contacts find sales
trends hard to read. Large chains expect comparable-store sales for
March and April to be 3 to 10 percent above last year's levels.
Sales at smaller stores and at those selling discretionary items
continue to decline.
Although retail conditions in the region remain very competitive and highly promotional, inventory levels are generally in line, and less distress merchandise is reaching the marketplace. Profits, on balance, are lower than last year's levels.
Some First District retailers find wholesale prices rising at a steady pace, while others report some acceleration. In contrast to the mid-April CPI reading, the panel reports no significant increases in apparel prices. However, prices for health and beauty aids and pharmaceuticals have accelerated in recent months.
Labor markets continue to loosen, especially at the managerial level. Wage increases have moderated to a 4 percent annual pace.
Retailers found 1959 to be a difficult year and generally expect 1990 to be similar. However, most contacts do not anticipate any further deterioration.
Manufacturing
Reports from First District manufacturers suggest that business
conditions continue mixed but generally softened during the first
quarter. While a majority of contacts indicate that shipments
exceeded year-ago levels, several respondents face declining
backlogs. Only one-quarter of the firms report new orders above
year-ago levels. Market conditions vary considerably by industry and
product line. In general, consumer luxuries, office supplies, and
products related to autos, construction and defense remain
relatively weak; however, a few contacts noted a recent pick-up in
major appliances, and in automotive and paper products. While soft,
defense generally held up better than contacts expected. Commercial
aircraft, power systems, and computer-related supplies face
relatively strong demand, and exports continue to provide welcome
support. Inventory levels are generally satisfactory.
In the face of anemic business conditions, selling prices are flat to down at a majority of contacts. By contrast, two firms raised prices by 5 to 8 percent on selected products and hope to introduce similar increases on other lines later this year. All contacts report that materials prices are stable or falling. Among firms discussing profit margins, improvements exceed declines.
Regional employment levels are stable to down. One firm that had hoped to reduce employment gradually through attrition has already had two lay-offs. Two recent wage settlements resulted in a 5 percent and a 3 1/2 percent wage increase for 1990.
Capital spending plans vary. Half of the firms expect significant declines from year-ago levels, and two firms have recently cut back on projects planned for 1990. Elsewhere, capital spending should continue at 1989 levels or increase by as much as 25 percent.
Most respondents view the prospects for 1990 with concern. They expect very slow growth throughout the nation, not just within the region, and a few have downgraded their outlook on the basis of first quarter sales. Although most contacts believe that their firms are on solid ground, few expect to make much headway during 1990.
Credit Availability
Contacts in small businesses and in organizations serving them claim
that financial difficulties at some of the region's banks have made
it more difficult and costly than previously for small business to
obtain credit. According to these contacts, banks are requiring
small firms to increase their collateral and provide personal
guarantees; some current loans are being called. Most large and
medium-sized manufacturers, in contrast, are experiencing no
difficulties obtaining credit.
Residential Real Estate
First District realtors report that March-April sales were slightly
below year-ago levels. Homes are reaching the market faster than
they are selling, and most realtors have large inventories of unsold
horns. While prices are falling, realtors claim that buyers'
unrealistic impressions of market weakness can delay agreement on a
purchase price. Mid- to low-priced homes are moving better than more
expensive houses. Expectations are mixed. Most realtors anticipate a
seasonal upturn this summer but are uncertain about the timing of a
genuine recovery.