June 17, 1992
First District manufacturers contacted in early June were more positive about the recovery than were retailers although both remain cautious. Retailers expressed disappointment at recent fluctuations in economic conditions. They reported that the slight strengthening of consumer demand witnessed earlier in the year appeared to fade in May. By contrast, most manufacturing contacts were pleased to report small year-over-year increases in sales and orders, thanks, in several cases, to unexpectedly strong demand from the auto industry. Nevertheless, anticipating a subdued recovery, manufacturers, like retailers, were keeping their investment and employment plans modest.
Retail
First District retailers contacted in the first week of June
reported that earlier sales gains, especially noticeable in April,
were reversed in May. They attribute the slowdown to poor weather
conditions that limited demand for summer apparel and home
improvement items. In addition, continued news of layoffs in other
New England industries was thought to have intensified consumer
caution. Only one of the retailers contacted experienced a
significant rise in sales, and the contact attributed the increase
to the firm's market position rather than economic conditions.
With few exceptions, the cost of goods to retailers remains fairly constant, as are the prices offered consumers. Inventories remain intentionally low, as retailers feel uncertain about the direction of the economy. Recent sales results have even convinced one contact to cancel plans for opening a new store. Others have restricted capital spending plans, typically to remodeling existing facilities.
With one exception, no contact plans to hire new employees. However, neither do the retailers contacted anticipate employment reductions, as staff levels had previously been reduced to a minimum. Two employers recently instituted small wage increases for all employees. Virtually all retailers are cautious about the summer ahead, and same express concern that, as in 1991, the positive results of earlier months may be followed by weakening.
Manufacturing
Two-thirds of the First District manufacturers contacted in early
June indicate that sales and orders are modestly above year-ago
levels. In all cases, the reported increase was 5 percent or less.
Nevertheless, several respondents have experienced unexpectedly
strong orders from the auto industry as well as improved demand for
products related to residential construction. By contrast, defense,
commercial real estate, and parts of commercial aerospace are said
to be relatively weak markets; general-purpose capital goods remain
sluggish as well. In addition, most First District manufacturing
contacts say that their major foreign markets continue to weaken.
Inventory-to-sales ratios are generally below year-ago levels;
according to a few respondents, ratios should continue to improve.
Manufacturing contacts indicate that materials prices are stable or under downward pressure. In the case of selling prices, a minority have achieved small increases on some or all products; the rest reportedly face a tough pricing environment.
Reports on employment are mixed. For the majority, the work force has shrunk from year-ago levels, with the declines ranging from slight to 7 percent. By contrast, a few contacts have hired or are now hiring small numbers of workers. Within the foreseeable future, one-third expect to reduce employment while another third expect to expand. As for compensation, one contact just announced a 2 percent wage increase, while another recently reduced wages and restructured the benefits package.
Capital spending plans are described as modest. According to several respondents, capital spending will remain flat or will equal little more than depreciation. Investment objectives include increasing efficiency, introducing new products, and providing required maintenance. One-third say that they have excess space.
First District manufacturing contacts believe that a subdued upturn has begun. However, they all expect that persistent problems in important markets will restrain the pace of the recovery.