October 31, 1990
Growing uncertainty about economic conditions characterizes reports from the First District. Retailers and wholesalers report weak sales, intense price competition, and tightening cost control measures. A majority of First District manufacturers report year-over-year gains in sales and orders. However, several contacts describe these increases as unrepresentative or unsustainable, and orders are generally growing more slowly than sales. Faced with an unusually large number of unknowns, manufacturers are battening down the hatches.
Retail
Retailers and wholesalers report flat or marginally higher sales at
best. Sales were substantially lower than a year ago for some
clothing and for building materials. Price promotions continued to
be necessary to move merchandise. All respondents indicate that they
are paring costs by reducing inventories or employment, or by
deferring capital projects. In the absence of some new positive
force, retailers and wholesalers continue to express a lack of
optimism about the possibilities for an economic recovery in the
region in the next year or so.
Manufacturing
A substantial majority of First District manufacturing contacts
report that sales continue to exceed year-ago levels, with gains
ranging from 4 to 16 percent. However, several firms discount these
gains as reflecting idiosyncratic developments, such as new products
or recently announced but not yet effective price increases. Some
also fear that a pick-up in demand from the auto industry may not
prove sustainable.
The news concerning orders is mixed. At over half the firms, orders are above year-ago levels, but almost half the contacts report a slowdown in incoming orders or customer delays. On a positive note, a First District computer company announced in its quarterly earnings report that it had experienced growth in its U.S. orders for the first time in several quarters. By contrast, some respondents sense a softening in demand from the commercial aircraft industry. Construction and medical and financial services are also weak markets. Several contacts describe a recent slowdown in incoming orders as geographically widespread, encompassing many U.S. trading partners including Canada, the United Kingdom, France, Italy and Korea. Inventory levels are satisfactory at half the contacts but have become a slight problem elsewhere.
Input prices are generally reported to be stable. In buyers' markets, two contacts have been renegotiating vendor contracts and are receiving discounts of 5 to 10 percent. So far, recent oil price increases have surfaced only as transportation surcharges and increased airfares. A majority of contacts have raised their own selling prices on all or selected products by 2 to 7 percent.
At most of the companies contacted, employment levels are flat or down by 2 to 20 percent. Two firms anticipate additional reductions. Half of the respondents indicate that their New England employment has fallen more than average.
Several First District manufacturing respondents have revised their capital spending budgets downward in 1990. Their plans for 1991 are mixed. Almost all expenditures are for equipment, including computers, for productivity enhancement, and for new products. Much of this spending will occur in New England.
First District manufacturers expect to see more of the same slow, spotty business conditions at best. They report that they are battening down, cutting costs. Most see the outlook as clouded by unusually large uncertainties that are inhibiting investment decisions. Nevertheless, one-half the respondents hope to outperform the economy because of new or high-quality products that are gaining market share.
Residential Real Estate
All First District realtors surveyed characterize the number of real
estate transactions as "reasonable" this fall, given the current
state of the regional economy. Sales have increased relative to the
slump experienced a year ago as sellers become more realistic about
asking prices. Nevertheless, homes still remain on the market for an
average of 150 days, a considerable increase from the 30-day average
of several years ago. Condominium sales have decreased, but single-
family home purchases grew relative to the summer quarter.