Beige Book Report: Boston
August 3, 1994
The First District economy is experiencing moderately vigorous expansion on the strength of retail and manufacturing activity, but housing sales are slowing. Prices of some manufactured goods and new homes are rising, while store prices generally remain flat.
Retail
June and early July retail sales were up 3 to 20 percent compared to
year-ago levels, according to most First District contacts. Home
centers and lumber stores experienced the most rapid growth, which
contacts attribute in part to the late start in this spring's
building season. Air conditioners, large appliances, and outdoor
equipment sold particularly well. Apparel sales grew moderately. The
small number of retail contacts reporting level or declining sales
cite inadequate inventories or shifting fashions.
The retail environment generally continues to be promotional. Prices and gross margins remain relatively flat, and inventories are intentionally lean.
Retail contacts anticipate a strong fall and holiday season with growth in sales of 5 to 12 percent. Encouraged by a perceived rise in consumer confidence and new mall developments in the region, some companies are planning increases in employment to staff new stores or expansions of existing stores.
Manufacturing
First District manufacturing contacts report broad-based growth.
Sales to the automotive and microelectronics industries are well
above year-ago figures, but rates of increase are expected to abate
by late 1994 or early 1995. Sales of computer networking products,
sporting goods, construction items, and woolen fabrics are reported
to be increasing considerably. Makers of paper products report 4 to
5 percent growth, and manufacturers of small medical and
pharmaceutical instruments indicate increases in the single-digit
range. Demand for aircraft parts reportedly remains soft. Exports to
Europe are increasing weakly at best, but some Asian markets are
flourishing.
Most respondents indicate some materials cost pressures. Several face substantial price increases for steel and copper as existing contracts with suppliers expire or strong demand forces them to rely on spot markets. Prices for raw wool and some wood species have recently risen by 20 to 30 percent, and paper prices are moving upward. Chemicals prices are reported flat.
About one-half of the manufacturing contacts have raised or plan to raise prices, by up to 5 percent. Remaining selling prices are flat to down, as a result of pressures from automotive customers and competition in industries such as textiles, medical supplies, and computers.
Equal numbers of respondents report that employment has decreased, increased, or held steady over the past year. Three-fourths of the manufacturing sample report modest to heavy use of overtime in recent months. Most contacts report 1994 wage increases of 2 to 4 percent.
Manufacturing respondents generally are fairly optimistic about future growth, although some point to risks associated with particular product markets or the economy at large. One-half plan limited hiring or reductions in the rate of job cutbacks. Manufacturers producing automotive parts, furniture, computer components, and paper goods are adding to capacity.
Residential Real Estate and Construction
Although the change is not yet reflected in the latest sales and
construction numbers, the residential real estate market in New
England has slowed after a very active spring. Contacts in
Massachusetts, Vermont, Rhode Island, and Maine report that June and
July sales agreements dipped below the levels seen earlier in the
year, even accounting for normal seasonal declines. They attribute
this falloff to higher interest rates. A couple of contacts note
that confidence is fragile and that a further increase in interest
rates or a downturn in the economy would have a significant impact
on the real estate market.
Although new construction is continuing strong as a result of contracts signed in the spring, a recent slowdown in purchase agreements and price increases due to higher input costs are expected to limit future activity. One Massachusetts builder notes that he has business only through September, and another contact expects that overbuilding will lead to a decline in speculative construction. Renovations and additions are reported to be strong.
Nonbank Financial Services The majority of respondents at insurance companies report a small rise in overall sales in the second quarter compared to a year ago. The largest increases were for variable annuities. Almost all respondents report flat or lower employment for the second quarter and expect a similar trend for the rest of the year.