Beige Book Report: Boston
March 15, 1995
The pace of New England's economic expansion shows some signs of moderating. Manufacturing activity continues to grow at a rate that varies from modest to robust. But most manufacturers also note selected areas of market weakness, and the region's retailers report disappointing results. While commodity prices continue to rise, some contacts report signs of deceleration; sales prices remain stable at most firms.
Retail
First District retail contacts were disappointed with January and
February sales, which mostly ranged from level to 10 percent below
year-ago levels. Retailers indicated, however, that year-over-year
comparisons were misleading because last year saw sales fluctuations
caused by winter storms while this year's weather is unseasonably
warm. Poor sellers were apparel, particularly winter clothing, snow-
removal equipment, housewares, sports equipment, and ready-to-
assemble furniture. Home office and electronics continued to perform
well.
Reports on price increases varied considerably. A few retailers cited an overall rise of 2 to 3 percent in vendor prices, and increases of over 10 percent on leather, plastic, and paper products. By contrast, prices on apparel have dropped modestly, and food prices remain level with the exception of meat, the price of which has reportedly declined over 10 percent in the past year.
While gross margins have varied, profits are holding or increasing modestly. Capital spending plans are level with those of last year. Employment is relatively flat, and wages are expected to increase 3 to 4 percent this year. First District retail contacts expect only level to modest sales gains over the next six months. They sense the economy is growing more slowly this year than last, and more respondents expressed concern about interest rates than in the past.
Manufacturing
Most First District contacts report continued growth in orders and
sales, with year-over-year gains ranging from slight to 35 percent;
however, the majority also note weakness in one or more markets.
Demand for capital equipment is mixed, with sales of machine tools
and networking equipment achieving double-digit gains while makers
of other computer-related products and instruments cite recent
softness. Sales of construction-related products remain moderately
strong as firms expand factories, warehouses and hotels; however,
the residential sector is said to be slowing. Orders from the
aircraft industry remain subdued and contacts report that auto
makers have recently reduced orders or asked that suppliers delay
shipments. Demand for medical equipment is mixed at best, while
disposable medical supplies are experiencing strong single-digit
growth, as are packaging materials. Reflecting a lackluster season
in apparel, textile sales remain sluggish. By contrast, specialized
consumer products are enjoying strong and improving growth.
While several firms continue to report sharp increases in prices for some commodities (particularly wool, polyethylene, and metals), a few note signs of possible moderation. One respondent noted that, while steel and chemical prices continue to climb, suppliers have begun offering rebates that soften the impact. In addition, prices of computer memory chips, which had been rising, have started to fall. Another contact who had been building stocks of supplies in anticipation of price increases is rethinking this strategy. Sales prices generally remain unchanged, although a few contacts are passing cost increases on to customers or are raising prices on selected, particularly new, products. Others, citing fierce competition, report cutting prices by double digit amounts.
Employment is below year-ago levels at most respondent firms. While one contact plans a significant layoff, most hope that their employment levels will stabilize at current or slightly lower levels. Firms hiring for replacement purposes generally have no trouble finding qualified workers.
Most contacts plan to raise capital spending above 1994 levels, with expected increases ranging from slight to over 20 percent. These funds will be used to expand capacity, introduce new products and cut costs.
Most respondents foresee at least modest improvements in company sales and profits in 1995. As an exception, three instruments makers describe 1995 as a challenging year. More broadly, contacts expect U.S. economic growth to slow; however, views are split as to whether the economy will achieve a soft landing or slip into recession.
Nonbank Financial Services
Since the beginning of the year, assets under management increased
at the majority of respondents among investment management
companies, while the rest were unchanged. Most attributed the
increase in assets under management to an increase in the market
value of the assets. A few respondents had positive net sales, with
most of the money flowing into domestic stock funds. Bond funds
continue to experience net outflows at most respondents, but these
outflows slowed in February compared to January of 1995. Half of the
respondents report stable employment levels and the other half are
hiring this year.