Beige Book Report: Boston
September 8, 1993
On balance, the First District economy appears to be expanding only marginally. Retail sales are flat to down among contacts reached in late August. Manufacturing growth is uneven, and respondents report competitive price pressures even in relatively strong areas like automobiles and electronics. Commercial construction shows scattered improvement. Asset managers are experiencing higher sales.
Retail
First District retail contacts report sales results ranging from
unchanged to more than 5 percent below year-ago levels. Respondents
observe that sluggish employment growth continues to inhibit
spending. Also, retailers in northern New England believe the
strength of the U.S. dollar has adversely affected trade with
Canadian tourists.
Both costs and selling prices are largely unchanged. Retailers report that inventory levels generally are satisfactory, but, in the absence of sales advances, they are monitoring their stocks closely.
Most retail contacts intend to renovate some stores or upgrade equipment, and a minority plan to expand their locations. Employment is increasing only to staff new locations. Looking forward, contacts express concern that economic progress may have stalled.
Manufacturing
Manufacturers of automotive and certain electronics products are
experiencing double-digit sales increases over year-ago levels.
Construction-related sales are improving moderately, with some boost
from rebuilding in hurricane- and flood-damaged areas. By contrast,
contacts indicate zero to very modest sales increases for food,
furniture, miscellaneous machinery, and products used by the
pharmaceutical industry. Sales of textiles for apparel, heavy
machinery, and medical equipment are declining significantly. Demand
for aircraft engines and parts also is reported to be sluggish,
except by one manufacturer with increased foreign orders.
Almost all contacts cite downward pressure on prices. The majority, including those in strong markets, indicate that their selling prices are flat. Medical equipment suppliers have reduced their prices, by as much as 15 percent. Materials costs are flat or up just slightly. A growing number of contacts indicate that they are pressing suppliers to reduce prices-with some success where markets are competitive. By exception, lumber prices have reportedly risen by about 20 percent over the past year, and one contact anticipates a double-digit increase in the price of steel after a three-year freeze.
Employment has risen substantially at two contacts over the past year, but most report declines in the range of 1 to 10 percent. The majority expect the size of their work forces to remain steady in coming months, although some are continuing to reduce their numbers through attrition or layoffs. One manufacturer of auto parts intends to hire additional workers, and two other contacts mentioned the possibility of increasing overtime if demand continues to improve. Capital spending remains concentrated on modernization and automation, but about one-third of this month's contacts intend to expand capacity.
Most manufacturers feel that the economy at large will provide very little help to their business over the coming year. Over half mentioned higher federal taxes as a negative factor, and some voice concern about uncertainties resulting from pending health care reform.
Commercial Real Estate
The commercial real estate market has shown signs of improvement
over the last three months. The apartment and retail markets
reportedly are attracting some new investment. Results in the office
market are more mixed. Sales of existing office buildings have
picked up in some suburban Boston locations as buyers appear to have
gained confidence that the market has bottomed. One contact notes
that prices may be up 10 to 15 percent, while another indicates that
prices have increased only for the most desirable, well-leased
buildings. Vacancy rates in the greater Boston office market
increased slightly in the first half of the year, mostly because of
a drop-off in large lease signings. Office leasing in the Hartford
area is reported to be slow, with vacancy rates continuing to rise.
According to one contact, recovery in Connecticut real estate is at
least six to twelve months behind the rest of New England.
Nonbank Financial Services
Investment management companies report strong sales. Increases in
assets under management ranged from 4 to 10 percent between the
first and second quarters of 1993. Sales were strongest in tax-free
bond funds and equity funds. Venture capital contacts report that
firms in communications software and health care cost containment
experienced strong growth in the second quarter, while retailers are
said to have had mixed results.