Beige Book Report: Boston
September 18, 1991
Economic activity in the First District has not improved noticeably. Most retailers report fairly flat sales in July and August compared to a year ago, but some experienced greater weakness or a deteriorating trend during this period. Although a majority of First District manufacturers surveyed express disappointment that sales and orders continue below year-ago levels, one-third see a glimmer of hope in incoming business. Nevertheless, most contacts expect no significant upturn in economic activity until the first or second quarter of 1992.
Retail
The majority of retail contacts report small increases or decreases
for July and August compared to a year ago. However, two respondents
experienced a deterioration of results for August compared to July,
another saw double-digit declines throughout the summer months, and
still another went out of business. Back-to-school and cold-weather
clothing sales have been weak.
Several contacts indicate a concern about future earnings, given their expectations that continuing job losses will deter consumer spending. At best, they expect modest increases in sales in 1992. Contacts generally believe that their own success in paring down inventories will reduce the pressure to lower selling prices. However, they anticipate heightened competition as a result of discounting by weaker competitors and new market entrants. They note that it will be hard to reduce expenses further because they have already cut staffing from last year's levels, and because capital budgets are already minimal. Other expenses -- such as taxes, workers' compensation, insurance, and rents -- are beyond their control.
Auto Sales
Automobile sales improved in August over previous months, but New
England dealers attribute much of the improvement to seasonal
factors. Sales are still below levels of a year ago. Although
contacted dealers see a slight pickup in consumer confidence,
stricter credit standards at banks have reportedly made financing
car purchases more difficult. Lower interest rates have not sparked
a substantial rise in consumer spending, according to the dealers.
Manufacturing
Reports from First District manufacturers are less uniformly gloomy
than in the previous survey. At one- third of the respondents,
shipments and orders are flat or up, by as much as 10 to 15 percent,
from year-ago levels. Areas of relative strength include
electronics, gas turbines, and consumer appliances. For the
majority, however, sales and orders continue below late summer 1990
levels, with declines ranging to 20 percent. One-third of the
contacts indicate that new business was practically nonexistent in
August, that existing orders were cancelled or delayed, and that
backlogs are dwindling. By contrast, another third saw a glimmer of
hope in recent orders, possibly attributable to transitory causes,
such the weather or customer inventory adjustments. Nevertheless,
most contacts express disappointment that business does not match
their expectations or the improvement reported by the media. Foreign
sales are also reported mixed and somewhat disappointing. Inventory
levels are generally described as satisfactory.
At most manufacturers contacted, the workforce is below year-ago levels, by 2 to 15 percent. Some firms have also reduced hours worked. One-third plan further cuts in employment, generally through attrition.
Over half of the respondents have reduced 1991 capital spending below 1990 levels and below plan. Several report that spending is now less than depreciation. Only two firms are expanding capacity for specific products.
Input prices are generally described as stable, rather than declining as they were previously. All of the manufacturers surveyed report that their own sales prices are flat or falling. Several firms complain of a squeeze on their profit margins.
Although a few contacts report tentative upticks, most see no clear indication that the recession has ended. Indeed, a majority expect the "tough sledding" to continue through the first or second quarter of 1992. Because they cannot see a potential source of significant growth, they expect the recovery to be very slow.
Residential Real Estate
New England realtors contacted in early September blame questionable
job security for sluggish residential real estate sales. Only in
eastern Massachusetts have realtors seen an increase in sales volume
relative to last year. Housing markets in New Hampshire and Vermont
remain in the doldrums, according to respondents, because the Boston
and New York economies, critical for both vacation home sales and
tourism, have not yet recovered.
The consensus among real estate contacts is that competition among banks for residential mortgages has made rates very attractive. By contrast, sharp declines in residential rents have made credit for investments in condominiums and other multifamily residential property difficult to obtain.