Beige Book Report: Boston
May 1, 1991
Economic activity remains subdued in the First District. The retailers contacted report reduced sales in early 1991 compared to a year earlier. Although some retailers anticipate modest year-over- year increases by the third or fourth quarter, most expect slack sales conditions to continue. Demand also remains weak for First District manufacturing contacts; however, a few report signs of a recent bottoming out. While commercial and industrial real estate show no improvement, residential sales have increased.
Retail
Retail contacts in the First District report that February and March
sales were below year-earlier figures. Declines were clustered
around 4 to 5 percent, although for one-third of the sample the
results were worse. Some retailers detect a slight improvement in
consumer confidence as a result of the end of the Persian Gulf War,
lower interest rates, and the anticipated resolution of the failure
of the Bank of New England. However, the prevailing expectation is
that 1991 will continue to be a tough year, especially given rising
unemployment. Even the most optimistic retailers are protecting only
low single-digit sales increases for the year as a whole.
Retailers continue to be very conservative in ordering inventories. Most contacts have been reducing employment in recent months, but about half note that it is becoming difficult to implement further staffing reductions without severely sacrificing customer service. About half the contacts feel that a lack of credit is hampering their capital spending, while the other half report ample credit for projects such as renovations and computer upgrades.
Manufacturing
Manufacturing contacts indicate that economic conditions continue
weak; however, a few report signs of a recent pickup. At two-thirds
of the firms contacted, sales are flat to down from year-ago levels,
with declines reaching 20 percent. The other third report year-over-
year gains of up to 10 percent. New orders continue to fall at
almost half the firms contacted, and some express concern about
stretch-outs and dwindling backlogs. Nevertheless, a slight majority
report a possible bottoming out, with incoming orders equal to or
above year-ago levels. Demand from communications, health and other
nonfinancial service industries is cited as relatively strong.
However, export activity is termed "sluggish" and "disappointing."
Input and sales prices are generally flat to down. The few firms that have raised selling prices on selected items have simultaneously discounted or lowered prices on other products; thus, their average price increases are 1 to 2 percent at most.
Almost half the manufacturing contacts have decreased employment from year ago levels -- by 5 to 20 percent; however, in contrast to recent reports, one firm is hiring and fewer than one-quarter plan additional reductions. Several contacts noted improvements in labor productivity.
Most respondents plan capital expenditures equal to last year's (generally low) levels. Two will increase capital spending -- in one case, very significantly because of a new product. Nevertheless, in the face of weak demand, a minority now expect to cut planned expenditures by 5 to 15 percent from budget.
Respondent expectations range from guarded to fairly confident -- with caution prevailing. A majority believe that the upturn will not occur before the third quarter, but a few report that the national recovery has already begun. Nevertheless, most expect that New England will lag the nation and that swollen debt levels will weaken the upswing.
Real Estate
First District realtors are optimistic for the first tine in several
months. Most are reporting increased home sales both from a few
months ago and from this time last year, with low and moderately
priced homes moving the fastest. One contact reported having the
highest number of sales since 1966. Realtors attribute the pickup in
sales to lower interest rates, falling prices, and an increase in
consumer confidence. Thus, they caution that an increase in interest
rates or a sharp drop in consumer confidence could have a negative
effect on home sales.
Commercial and industrial real estate, by contrast, show no improvement. Construction of new commercial space has nearly ground to a halt in the First District. Nevertheless, with employment in the region's financial institutions declining, vacancy rates are not likely to ease. Instead, office rents are expected to continue falling. Vacancy rates are also increasing in the Boston area industrial market.