December 8, 1993
Gradual economic expansion continues in the First District. Many regional retailers report their sales gains have been constrained by competition, although some specialty and outlet stores are doing well. Some New England manufacturers report strong growth; manufacturers serving a few industries report a falloff in sales. Commercial real estate markets continue to improve in Boston and northern New England, but no turnaround is visible in Hartford. Mutual funds' assets under management continue to grow.
Retail
Most First District retailers contacted report that sales gains were
modest, at best, in October and the first half of November.
Department store sales remained sluggish throughout the fall, as the
hoped-for kick from back-to-school sales did not materialize.
Merchants in Maine saw a severe erosion in sales, which they
attribute to fewer Canadian shoppers. A few specialty and outlet
chains, by contrast, report sizable gains compared to year-ago
levels. Most retailers indicate employment is stable and wages have
increased 2 to 3 percent.
New England retail contacts foresee a tough, competitive holiday season. All are going "all out" to attract shoppers, offering coupon promotions, longer store hours, and large discounts beginning in mid-November. Nonetheless, a majority expect only 2 to 3 percent sales growth in December versus a year earlier, far less than in 1992. Merchants also are cautious in their outlook for 1994, and they fear that fierce competition will force some department stores out of business. In response, they are keeping capital spending at a minimum.
Manufacturing
A majority of First District manufacturing contacts report that
demand has risen from a year ago, but results vary considerably
across products. Sales of furniture, automotive parts, and other
consumer durables are increasing strongly. Suppliers to the personal
computer industry are benefiting from double-digit sales trends,
although one contact has experienced a slowdown attributable to
competition among computer firms. Manufacturers of machinery,
equipment, and other supplies used in commercial and industrial
applications indicate minimal to high single-digit increases in
sales. Sales of aircraft parts, defense equipment, medical
instruments, and apparel textiles are reported to be down
significantly.
Several contacts indicate that the Midwest and Southeast states are showing the best sales performance, but that New England markets are recovering. European demand is described as generally weak.
Several consumer goods manufacturers have raised prices 1 to 4 percent, while a few capital goods manufacturers have been forced to lower prices. Otherwise, selling prices are described as flat. Cost pressures remain minimal, except for lumber prices and some modest increases attributable to appreciation of the yen.
About one-quarter of this month's contacts report a significant reduction in employment over the past year, while three-quarters indicate little change. Manufacturers anticipating increases in sales volume are planning zero or only modest additions to their work force, as they intend to increase efficiency.
Most contacts expect the economic environment in 1994 to remain unchanged or to improve moderately. Some indicate that their forecast is predicated on maintaining consumer confidence or reasonably low interest rates. Several note that their company's prospects depend in part on introducing innovative products.
Commercial Real Estate
First District commercial real estate markets have changed little
over the last three months. Boston and Portland, ME have the most
active office markets, with sales of existing buildings picking up
and vacancy rates that are flat or falling slightly. Several
contacts attributed part of the turnaround to the willingness of
some banks to make aggressive new loans and, in some cases, accept
more risk. REIT-related buying activity is also partly responsible.
Hartford lags behind the northern cities, and reportedly still faces
possible further cutbacks in the insurance industry. Commercial
construction activity around New England is still largely based on
government contracts. Rehabilitation of older offices in Boston is
not yet economical, but this activity is expected to pick up in the
next couple of years.
Nonbank Financial Services
Investment management companies in the First District report a very
strong volume of sales in October. The majority of respondents
report that assets under management were more than 50 percent higher
than a year earlier. Sales continue to be strongest in tax-free bond
funds and equity funds. Employment has increased 5 to 30 percent.
Venture capital firms report that among firms in their investment portfolios, telecommunications system and capital equipment firms are experiencing stronger sales in the fourth quarter than earlier in the year, while software firms' sales are flat.