Beige Book Report: Boston
June 23, 1993
The First District economy continues to expand at a slow pace. Retailers, who had hoped that sales would improve once winter weather ended, express disappointment with results in late spring and early summer. Manufacturing contacts indicate that demand is flat to up modestly, and that inflation is not a major concern.
Retail
First District retail contacts observed decelerating sales during
May. Results are mixed, with some retailers reporting declines,
others gains, from a year earlier, but all agree that consumer
caution is building again.
While the retail environment remains intensely promotional, prices and margins are stable. One exception is the price of lumber, which has declined following a price spike in the winter. Retailers are monitoring inventories carefully; none plan to add to current stocks.
Levels of permanent employment are generally unchanged, and summer seasonal hiring is limited. Wage increases are either nonexistent or limited to 3 percent. Among those contacted, capital spending plans are described as limited and focused on replacing equipment and remodeling stores. The few expansions under way are, for the most part, outside of New England.
Manufacturing
Just over half of this month's manufacturing contacts indicate that
recent sales have been about flat compared to year-earlier figures.
Most of the remainder have experienced moderate increases. First
District manufacturers generally project that the economy will
continue to grow only modestly.
Most contacts selling to the automotive industry report higher demand than a year ago. By contrast, contacts view the recovery in housing as disappointing or uneven, based on sales of housing- related products that generally are only slightly higher than in mid-1992. Sales of aircraft engines and parts typically are down sharply, but some contacts report rising exports to developing countries or stable demand from the Defense Department.
Although the U.K. economy is said to be in a modest recovery, declining demand in continental Europe is a source of heightened concern for First District manufacturers. A couple of contacts selling capital goods report strong sales to China and other Asian markets.
Manufacturing contacts report little or no inflation in sales and input prices. One manufacturer indicates that producers will "believe inflation when they see it," not when it is forecast by the bond market. Competitive pressures generally are reported as strong. Prices for a variety of capital goods -- including computer parts and building components -- are trending downward. Three manufacturers note that they have been able to raise prices only on products incorporating new features. One contact is paying higher prices for paper, and another has raised its prices for steel-based products.
Most contacts have reduced employment over the past year, by between 3 and 11 percent. The majority intend to continue to lower their U.S. head count. Increased demand for selected products is causing limited hiring or longer work hours, despite overall job cuts. This year's capital spending is projected to be flat to slightly down at most companies contacted.
Commercial Real Estate and Construction
The market for commercial real estate in New England continues to
plod along, with many markets showing small signs of improvement.
Vacancy rates have fallen in the Boston area on most types of
property, and may have stabilized in Hartford. The office market is
in better shape than the R&D and industrial markets.
Non-residential construction activity is slow, but in better shape than a year ago. Most new projects are in the health-care, education and public sectors. The large number of subcontractor failures has abated, and margins are now up a bit from a year ago.
Nonbank Financial Services
Mutual fund companies report an increase in net sales and assets
under management caused by the continuing run-off of maturing
certificates of deposit in the low interest-rate environment.
Investors favor conservative equity funds while money market funds
experienced an absolute decline. The majority of mutual fund
respondents report that their employment has been slowly increasing
and they expect that trend to continue for the rest of the year.
The Outlook
The New England Economic Project (NEEP), a nonprofit forecasting
group, released its semi-annual regional forecast in May. NEEP
projects that total New England employment will begin a sustained
moderate recovery in the second half of 1993. Service industry jobs
have been increasing since the middle of 1991 and are forecast to
continue to grow modestly. By contrast, a turnaround in finance,
insurance, and real estate is expected to be delayed until early
1994, and manufacturing employment is projected to keep slipping.