Beige Book Report: Boston
June 20, 1990
Economic activity in the First District has been weak in recent months. Although some retailers reported sales modestly above year- earlier levels, in most cases sales were flat to down and inventories were high. Reports from manufacturers were slightly stronger: sales and orders were generally above year-ago levels and inventories were in line. In both sectors, input and selling prices were fairly stable. No employment increases are planned, and staffing is down at a number of contacts. A recently released forecast foresees continued employment losses in the region through the end of 1990 and no significant job growth until 1992.
Retail
Retail sales in the First District were uniformly reported to be
slow in recent months. Some retail contacts enjoyed modest sales
increases compared to a year ago, but the majority said that sales
were flat or down and that inventories were excessive. Housing-
related goods and clothing were especially weak. Several firms
reported very poor sales in May as cold, rainy weather limited
traffic and depressed demand for summer items. Some contacts believe
the slowdown is more a matter of consumer confidence than ability to
spend.
Selling prices were widely reported to be fairly flat as a result of promotions and stability in supplier prices. Gross margins were mixed, but were more often down than up.
Most retail respondents are now hiring only to fill vacancies. Some sellers of durable items have reduced employment over the past year.
All retail contacts expressed caution about the future. None foresees any pickup soon, although a few hold out hope for this year's fall and Christmas seasons. Despite their concerns, about half the respondents (mostly department and general merchandise chains) will continue with plans to open new stores in the coming year.
Manufacturing
Most First District manufacturing contacts continue to experience
slow growth. Two-thirds report that sales and orders are above year-
ago levels, with gains ranging from marginal to 15 percent.
Elsewhere, shipments and orders are down by as much as 7 percent.
Areas of comparative strength include telecommunications, defense-
related electronics, shipping equipment and the aerospace overhaul
business. Several firms say that new products are performing well.
By contrast, demand from the construction, electric utility and auto
industries was relatively weak. Two respondents expect a decline in
auto company orders by year-end, because they believe that auto
makers are currently building inventory for a possible strike later
this year. Several contacts mentioned that growth in exports,
especially to Asia, is slowing.
Inventories are generally termed satisfactory. In several cases inventory levels are lower than at this time last year. Employment is also 1 to 3 percent below year-ago levels at most manufacturers contacted. No respondent plans to increase employment in 1990, and further declines are expected. Respondents mentioning wages expect 1990 increases to range from 3 to 7 percent.
Input prices are said to be stable, reportedly rising 1 to 2 percent at most. For a majority of respondents, selling prices are unchanged or down from year-ago levels. These firms have responded to increased domestic and Japanese competition by lowering prices, discounting or introducing "stripped down" versions of some products. A few of the firms surveyed have passed on increases in materials prices to customers or have achieved selective price increases ranging from 2 to 5 percent. Although a third of the contacts suffered losses or a decline in profit margins in recent months, several expect improved profitability by year end.
Capital spending will remain at 1989 levels, according to most manufacturers contacted. However, weak demand is causing two firms to reduce their capital spending plans for this year.
Most First District manufacturers foresee little change in economic conditions this year. In general, they expect their firms to grow faster than the national or regional economies.
Outlook
The New England Economic Project (NEEP), a nonprofit organization
comprising businesses, government agencies and educational
institutions, released its semi-annual forecast at the end of May.
The forecast calls for nonagricultural employment in the region to
decline slightly in 1990. Regional employment will stabilize in 1991
and grow moderately in 1992, as manufacturing job losses abate and
nonmanufacturing jobs expand gradually. The hard-hit construction,
finance, sad real estate industries are not expected to turn around
until 1992. NEEP forecasts that the region's unemployment rate will
stay slightly above the national average until the end of 1992.