Beige Book Report: Boston
March 10, 1993
Economic activity in the First District continued to increase modestly in early 1993. On the retail side, the strength exhibited at Christmas has extended into January and early February, and has given retailers increased confidence in their prospects for 1993. Manufacturing is more mixed, with about one-half of contacts reporting little or no improvement in their overall sales from year-earlier levels. However, demand for some consumer goods, personal computer parts and accessories, and residential construction materials is growing strongly.
Retail
A majority of First District retail contacts report continued
strengthening of sales in the weeks following Christmas. Most
attribute the improvement to rising consumer confidence, although
one credits only the cold weather. Two contacts observed a slowdown
in the pace of improvement in late February.
The improvement in sales has yet to affect prices or margins significantly. Nonetheless, most contacts have permitted slight increases in their inventory, and some retailers, expecting strong sales in the spring and summer, plan further additions to stocks. The current increase in demand, however, is not sufficient to prompt retailers to raise employment or wage levels at existing locations. About one-quarter of those contacted are undertaking major capital investments, and they are hiring in order to staff new locations. Although encouraged by the post-holiday performance, First District retailers remain cautious in the face of an uncertain pace of recovery.
Manufacturing
Almost one-half of this month's manufacturing contacts report that
recent sales are flat relative to year-earlier levels. One-third
indicate increases in the range of 4 to 6 percent.
Compared with a year ago, New England manufacturing contacts report strong growth in demand for automotive and personal computer parts, residential construction materials, and equipment used in the retail industry. Some pickup also is noted for metalworking machinery. Sales of nonresidential construction and defense-related products remain sluggish. Demand for heavy industrial equipment and commercial aircraft engines and spare parts is down considerably. Most respondents indicate that European markets are weak.
Some contacts have been able to raise prices modestly - by up to about 2 percent. However, not all price increases are sticking, and prices continue to decline for a variety of machinery and equipment.
Of those manufacturers reporting on employment, the majority have reduced the size of their work force over the past year, from 3 to 15 percent. For the coming year, most contacts intend to make only very small adjustments in the number of employees. However, a minority of respondents mention continuing reductions in employment or a potential vulnerability to further defense cutbacks.
Most firms contacted intend to keep capital expenditures roughly unchanged in the coming year. These expenditures are concentrated on modernization; only a couple of contacts plan to expand capacity.
Manufacturers generally observe that the economic recovery is slow, but that it now appears to have some momentum. The majority continue to be concerned about the coming year as a result of weakness in the airline industry and European markets, or uncertain responses to fiscal policy initiatives. About half the respondents volunteered that low interest rates are important in maintaining an economic recovery.
Commercial Real Estate
Activity in the First District commercial real estate market remains
slow, with prices stabilized but little new leasing activity.
Contacts pointed to Burlington and downtown Boston as areas with the
most growth, while northeastern Connecticut and southern New
Hampshire lag. A Portland contact believes the market's recovery is
constrained by some banks' refusal to fully realize their losses.
Citing commercial rents that never declined to levels comparable to those in cities like Houston, Chicago and Los Angeles, one national real estate investment firm is recommending that clients look only at apartment and retail projects if they want to invest in New England. All contacts expect the commercial market to grow only slowly in the First District over the next three to five years.
Nonbank Financial Services
Investment management companies surveyed report strong sales of
mutual funds in January and February. Sales were strongest for
municipal bond funds, followed by small-capitalization stock funds
and other taxable bond funds. This sales growth has led to some
modest recent and planned hiring.
Venture capital funds report mixed results for the firms in their portfolios. In high technology portfolios, revenues of software and computer network firms have picked up since the beginning of the year, while those of hardware and semiconductor firms have been flat to down. Capital equipment firms and radio and TV stations also experienced improvement, according to these venture capital contacts.