Beige Book Report: Boston
January 21, 1993
Economic activity in the First District was increasing very modestly at the end of 1992. Retailers reported mixed holiday results: while sales improved for a majority of contacts, a minority experienced flat results. Most manufacturers report that sales were level or only slightly above year-ago levels. Sales volumes were up for residential real estate and insurance. Although the majority of contacts expect a modest business upturn in 1993, they do not intend to hire and may even reduce their work forces.
Retail
Although media reports indicated a robust Christmas season, not all
First District retailers experienced improvements over year-ago
results. Sales gains ranged from substantial to none. Some of the
variation is geographic; the strongest sales advances were made by
retailers serving national markets. Further, several retailers who
reported no increase in sales attributed their weak performance to
store locations in New England but outside the Boston metropolitan
area.
Some contacts promoted heavily or resorted to markdowns, and margins varied approximately in line with these activities. Inventories are now even with or slightly above last year's levels; only one contact believes that inadequate stocks reduced holiday sales.
Some firms experiencing sales gains added permanent employees or granted wage increases. Similarly, capital expenditure programs parallel recent sales activity. These plans range from equipment upgrades to major expansions. Most retail contacts do not expect dramatic changes in the economy or their own performance in 1993.
Manufacturing
About one-half of this month's manufacturing contacts report that
recent sales are flat relative to year-earlier levels. Most of the
remaining companies indicate that their overall business has
improved modestly. Many consumer and housing-related products and
business services have experienced an increase in demand. Automobile
markets remain mixed. The press has reported that a New England-
based military contractor has received a large order from Saudi
Arabia but our contacts indicate that other defense business is
weakening. Orders for aircraft parts, large electronics systems, and
government work also are softening. Japanese and European markets
have been weak for several manufacturers.
Respondents report that they face a highly competitive pricing environment. Business customers in the retail, aircraft, and automotive industries in particular are pressuring suppliers to reduce prices.
The majority of the manufacturers polled expect that continued growth in the U.S. economy will have a positive, though relatively modest, impact on their companies in 1993. Most manufacturing contacts have reduced employment in the past year, with declines ranging from 1 to 25 percent. Only one, relatively small, manufacturer indicated that a significant increase in production jobs is likely this year. Roughly half the sample expect that their U.S. work forces will remain at about the current level, while the remaining firms intend to continue to implement reductions.
Capital spending trends and plans are mixed. Many contacts indicate that they are investing in new computers. Although most manufacturers contacted have pared down inventories over the past year, some believe that they can make further progress by adopting better inventory control methods.
Residential Real Estate
The market for residential real estate in the First District is
continuing to show signs of slow, steady improvement. Sales volume
is above year-ago levels, inventories are down slightly, and permits
are up a bit. A New Hampshire contact reported November sales that
were at 1987 levels. A Connecticut contact was less optimistic about
reported sales increases, noting that many may be due to
foreclosures and distress sales rather than marketplace
improvements. Single-family home prices seem to be flat, while
condominium prices may still be falling.
Nonbank Financial Services
Insurance companies have experienced a modest increase in sales in
the last several weeks. However, most report sales flat over the
year, with only a few citing increases compared to year-end 1991.
Mutual funds, variable annuities, and individual life insurance
products continue to be strong sellers. Respondents continued to
retreat from personal property-casualty lines, especially for
automobiles and for properties in the Northeast. Most contacts have
either reduced employment in the last quarter or foresee a reduction
in 1993. Only one plans a small increase in employment this year.
Assets under management have shown mixed trends, but most firms have
strengthened their capital positions for the year.