Beige Book Report: Boston
June 19, 1991
Economic conditions in the First District show some signs of improvement. Although a majority of First District manufacturing contacts continue to report sales and orders below year-ago levels, almost half saw business pick up in April and May. Retail reports were more uniformly positive, with retail contacts indicating that sales in May were at or above year-ago levels. Because special factors may account for the pickup to date, most manufacturers and retailers feel that an economic recovery has not yet begun - either in the nation or in New England. Nonetheless, retailers anticipate either stable or improved sales results for the coming year, and one-third of the manufacturers contacted believe that a national recovery is already under way.
Retail
Retail contacts in the First District report that May sales were
between zero and 10 percent above year-ago figures, an improvement
from the year-over-year declines seen earlier in 1991. Respondents
are hesitant to interpret these recent results as an economic
turnaround because the gains may partly reflect weather-related
sales, purchases that could no longer be postponed, and comparisons
with unusually poor figures in May 1990. However, most retailers
also point to selected positive economic signs, either nationally or
locally. The consensus is that the New England economy will show
modest improvement over the coming year, and all the contacts
anticipate either flat or rising sale. for their company.
Employment levels have now stabilized at the majority of retail contacts, after having declined during the previous year. Some retailers that had previously frozen wages are beginning to give selective increases. Capital budgets remain tight, with most retailers spending only for replacement and repairs. About half the sample report that managing or reducing inventory levels remains a priority.
Manufacturing
A slim majority of First District manufacturing contacts report that
sales and orders are down from year-ago levels. Sales declines range
from 1 to 6 percent; those for orders from slight to double-digit
percentages. Elsewhere, sales and orders are steady or rising (in
one case substantially) compared to 1990 figures. Several firms
indicate that foreign (particularly German) sales have been stronger
than domestic, but most contacts report that overseas demand has
weakened recently. Despite the slowdown abroad, almost half of the
contacts saw their total business improve in April and May. New or
specialty products and those related to environmental monitoring,
oil, telecommunications, and aerospace show the most strength.
Products for consumer durables manufacturers have also improved. By
contrast, commodity limes, and equipment for the auto, defense,
construction, and retail industries remain relatively weak.
Firms discussing inventories describe them as satisfactory. Supplies are readily available, and carrying costs have declined with interest rates.
Input prices are reportedly stable or below 1990 levels, and some firms continue to achieve negotiated reductions. Half the respondents have held selling prices steady or have reduced them through discounts. The rest are adopting a mixed strategy -- raising prices on selected products (by as much as 5 percent) where market conditions permit, lowering them on other items for which competition is severe.
A majority of contacts report that employment levels are below 1990 figures, generally by small percentages. Half the firms plan further modest reductions.
This year's capital spending will be below 1990 levels at over half of the responding firms. Declines range from small to as much as 20 percent. On the other hand, one-third of the contacts expect to increase capital spending substantially with significant expenditures planned for New England.
According to a two-thirds majority of manufacturers surveyed, an economic upturn is not yet in sight. These contacts expect "stagnation" to persist, in some cases into early 1992. One observer described the economy as just "bouncing along" the bottom. Nevertheless, a third of the respondents believe a national recovery has already started.
The New England Economy Project (NEEP), a nonprofit organization comprising businesses, government agencies and educational institutions, released its biannual forecast in early June. Based on a national forecast that the recession will end this summer, NEEP expects New England's recovery to lag, with total nonfarm jobs beginning to grow in the first quarter of 1992. The projected regional turnaround reflects a noticeable slowdown in the rate of manufacturing job loss as well as gains in nonmanufacturing employment. Job growth is expected to be quite modest in 1992.