Beige Book Report: Boston
May 4, 1994
A moderate recovery continues in the First District. Most of the retailers, manufacturers, and residential realtors contacted reported increased activity in recent months, although some results are negative.
Retail
The long-awaited arrival of spring brought out New England's
shoppers. First District retail contacts were pleased with increases
in sales ranging from 5 to 8 percent in March compared to year-
earlier levels. April results were mixed, however, with two contacts
reporting sales declines compared to April of 1993. One contact
noted a decrease in sales of electric appliances, toys and
kitchenware, but attributed it in part to a consumer shift toward
big-ticket purchases, such as homes and automobiles. Two hardware
and building companies voiced concern that continued fluctuations in
lumber prices might dampen sales and profits. Other prices have
remained stable, and only one contact expects vendor price increases
later this year.
The region's retailers are reasonably optimistic about the next six months, anticipating modest sales growth of 3 to 5 percent over last year. Inventories are up slightly in anticipation of increased sales. Employment levels are expected to rise slightly, and contacts generally intend to increase wages about 3.5 percent.
Manufacturing
First District contacts indicate continued, though uneven, expansion
in the manufacturing sector. Manufacturers serving consumer
durables, housing, and some computer markets report year-over-year
percentage revenue gains in the high single digits or greater. Sales
of nondurables are flat or increasing slightly, while demand for
aircraft engines and minicomputer products is falling. Medical
equipment sales are generally flat, but hospitals are reportedly
cutting back sharply on orders for large equipment.
Manufacturers report only minor increases in materials costs, with the exception of double-digit inflation for cotton fibers and copper. Contacts generally indicate no possibility of passing through higher costs, because of highly competitive sales markets. Prices for computers and other equipment continue to fall, at an accelerated rate in the case of major hospital equipment. Wage increases range up to 3 or 4 percent, but reportedly are offset by productivity gains.
About one-third of this month's respondents (serving consumer durables and electronics markets) are expanding capacity. Worldwide capacity constraints for some computer parts reportedly are or may soon be delaying selected deliveries. One automotive parts supplier, by contrast, notes being able to increase utilization at either domestic or foreign plants to fill booming orders from Detroit.
Two-fifths of manufacturing contacts report that the size of their work force increased over the past year, two-fifths that it decreased, and the remainder that it held steady. Weak sales or cost-cutting efforts are expected to continue to lead to employment reductions at some large companies.
Manufacturers' views about the future range from optimism (resulting from perceived strength in the U.S. economy or their own earnings gains) to caution (resulting from tighter monetary policy or weakness in particular markets). Exporters anticipate a modest upturn in European demand starting in late 1994.
Residential Real Estate
Housing sales in much of the First District are reportedly as strong
as they have been since the mid to late 1980s. Home prices are
rising in much of eastern Massachusetts, particularly for new
construction, with prices in some suburbs west of Boston exceeding
their 1988-89 peaks. Much of this activity is attributed to pent-up
demand among trade-up buyers. Respondents also reported sales volume
rising in New Hampshire and Connecticut. Several contacts commented
that the greatest improvements in activity are taking place in
previously depressed areas of Massachusetts and Connecticut.
Contacts were split on the impact of higher interest rates, with
several arguing that the residential market will not be adversely
affected until 30-year mortgage rates exceed 10 percent, but others
expecting negative effects later in the year-either a reduction in
activity or a shift of potential home buyers toward lower price
ranges.
Nonbank Financial Services
Sales at insurance companies are mixed. Half of the respondents
report that sales increased in the first quarter of 1994, compared
to the first quarter of 1993, while the other half reported flat or
declining sales. The strongest sales increases were registered in
variable annuities, variable life insurance, and mutual funds.
Almost all respondents reported flat or declining employment in the
first quarter of 1994 and for the rest of the year.