Beige Book Report: Boston
September 14, 1994
While the First District economy continues to expand, recent economic conditions appear to be somewhat less robust than earlier in the summer. Some retailers, especially apparel merchants, report weakening sales, but hard goods and food are still selling well. Manufacturing sales results are mixed, and prices are reported to be stable, with a few exceptions. Commercial real estate continues to strengthen in most of the region, as evidenced by noticeable declines in office vacancy rates. Investment management companies report lower sales in the second quarter than in the first.
Retail
Most First District retail contacts were less heartened at summer's
end than at the beginning. Sales results ranged from 5 percent above
to 6 percent below year-earlier levels, with the gains concentrated
primarily in stores selling hardware and food. Apparel contacts
noted flat or declining sales for all or most of the last six weeks,
and attributed the sluggishness to consumers' preference for big
ticket items and home merchandise, the effect of exchange rate. on
purchases by Canadian tourists, and unexciting fashions.
Retail contacts were hesitant to predict results for the remainder of the year, and several perceive a "general spending malaise." Retailers of apparel anticipate sales increases of less than 2 percent compared to year-ago levels, while hardware and food retailers expect sales to continue growing at a steady 4 to 5 percent. Most contacts report little or no change in vendor or retail prices. Lean and more tightly controlled inventories have reportedly contributed to improved profits this year.
This summer's tourism has been exceptionally strong. Boston's hotel occupancy rates were up 5 percent in the first seven months of 1994 compared to year-ago levels, and up 11 percent in July compared to July 1993. The growth in tourists is attributed mostly to large conventions and international visitors particularly those from Britain and Germany.
Manufacturing
First District manufacturing respondents indicate mixed sales trends
from a year ago. Solid growth is reported for computers and
semiconductor products, printed matter, furnishings, and small
consumer durables. Half of the contacts supplying automotive
products continue to experience strong gains, while the remainder
report recent weakening. Demand for apparel and furniture upholstery
textiles has fallen from a year ago. Sales of new aircraft are
generally flat to down, although one contact reports much stronger
sales of spare parts than a year ago.
Contacts generally indicate that materials costs and output prices are stable. However, one contact notes that costs for fibers have increased 3 to 5 percent, and another has agreed to fiber price hikes in early 1995. A purchaser of paper has experienced cost increases of 15 to 20 percent since July, but a paper manufacturer notes that prices remain depressed relative to historical norms. Prices of computers and components remain on a downward trend.
Approximately equal numbers of respondents report that employment has decreased, increased, or held steady over the last year. A majority expect the size of their work force to remain unchanged in coming months, but about one-third believe that cutbacks are possible or likely in response to lower sales volumes or cost- cutting pressures. Most contacts report 1994 pay increases of 2 to 4 percent, although a couple indicate that at least some categories of employees are receiving no increase.
Manufacturers generally foresee slow U.S. macroeconomic growth in the coming year, which some attribute to tighter monetary policy. Projections for individual companies vary considerably.
Commercial Real Estate and Construction
The commercial real estate market has improved in many parts of New
England, led by substantial leasing activity in the Boston area
office market. A respondent in the construction industry expects
serious renovations on older buildings to begin in the near future,
with new construction at least several years down the road. In
Providence, downtown office space is still plentiful, but suburban
space is difficult to find, leading a contact to predict new
suburban construction in the next couple of years. The Hartford
office market is the exception to the regional trend, with little
improvement in the downtown office market, but some additional
activity in the suburbs.
Nonbank Financial Services
Investment management companies report weaker sales in the second
quarter of 1994, following record sales in the first quarter. Sales
of equity funds increased in July and August of 1994, but bond funds
continue to suffer net outflows of cash. Among equity funds,
international and global funds had the biggest growth, with emerging
market funds being especially popular in the past two months. All
but one of the respondents increased employment in the second
quarter and plan to further increase their employment later this
year.