Beige Book Report: Boston
December 5, 1990
First District contacts in both retailing and manufacturing report that economic activity in the District was generally below year- earlier levels in October and November. For most retail contacts, sales are running from slightly above to modestly below 1989 figures, but sales of some durable or discretionary items have declined more than 10 percent. Sales of First District manufacturers remain mixed, but most report that orders are flat to down from year-ago levels. Fearing a national recession, most manufacturing respondents are keeping inventories lean, reducing employment and cutting capital spending plans. Retailers, too, have been cautious in preparing for the Christmas season.
Retail
For the most part, this month's panel of retailers reported sales
results ranging from slight increases from last year's figures to
single-digit declines. Sales of pharmaceutical products have
increased more than most goods, however, while sales of home
building supplies and some non-essential items have declined at
double-digit rates. Results from northern New England tend to be
stronger than those from the southern states in the region. Because
of continuing regional economic weakness, increases in oil and
gasoline prices, and anxiety about the Middle East, retailers are
being cautious in adding stocks and employees for the Christmas
season.
Most prices are reported to be fairly stable because weak retail demand requires a promotional stance. However, prices for some metal and plastic hardware products are up as much as 6 percent from last year.
Retail contacts are continuing to pursue cost-control measures. Some are reducing interest expenses by repaying loans. Sellers of durable goods seem especially focused on reducing inventory and employment costs.
The consensus projection for 1991 called for fairly flat sales combined with continued pressures on earnings.
Manufacturing
First District manufacturers contacted in mid-November report mixed
sales results; however, a clear majority indicates that orders are
flat to down compared with year-ago figures. Declines in orders
range from 5 to 25 percent from 1989 levels. One-third of the
respondents noted a sharp drop in demand 6 to 8 weeks ago. With the
exception of Germany, demand from overseas has reportedly softened
and is no longer stronger than domestic activity. In the United
States, the auto and construction industries, retailing, and the
government sector all represent relatively weak markets. Stronger
sectors include commercial aircraft, telecommunications,
electronics, and packaging. Inventory levels are widely described as
satisfactory.
Employment is below year-ago levels at almost all manufacturers contacted. Declines range from slight to as much as 10 percent. Respondents plan no additional lay-offs at this time.
Materials prices are generally reported to be increasing—from gradually to as such as 8 percent for oil-based products. Contacts mentioned price increases for chemical feedstocks, steel, imported inputs, and "shop supplies," such as safety equipment. Most contacts are trying to pass these input price increases on to their customers, but one-third are meeting resistance. Almost half have raised their selling prices by 3 to 5 percent on selected items.
Among firms discussing 1990 capital spending, most describe current expenditures as below-budget. Almost half the firms contacted plan to spend just enough to cover depreciation in 1991. A few firms expect to upgrade their equipment; only one is building a new facility.
First District manufacturers describe themselves as very cautious. The majority expect a national recession lasting two to four quarters. A few respondents report making contingency plans in case the downturn turns out to be longer or deeper than currently anticipated. Several contacts expressed concerns about the implication of current debt levels for the economy.
Outlook
The New England Economic Project (NEEP), a nonprofit organization
comprising businesses, government agencies and educational
institutions, held its semi-annual outlook conference at the end of
November. Based on a national forecast that now includes a
recession, the NEEP forecast calls for nonagricultural employment in
New England to continue declining through the end of next year. Jobs
in the region are expected to grow at a very modest pace in 1992 and
remain below 1990 levels even in 1993. Unemployment in New England
is projected to exceed 7.5 percent in the second quarter of 1991.
Incomes are expected to grow more slowly in the region then the
nation through the end of 1993.