August 9, 1995
Economic activity is slowing in the First District. Sales or revenues of a majority of retail and manufacturing contacts in New England are flat to down from a year earlier. Most prices are reportedly flat. Commercial real estate markets are mixed, with the office and retail sectors weaker than last year.
Retail
Most retail contacts in the First District express disappointment
with their June and July sales growth from a year earlier, which
ranged from 5 percent declines to gains of 5 percent. Even an
exception, a large chain posting double-digit sales growth, noted
that recent sales of durable goods were below expectations. Contacts
view the next six months with great uncertainty, anticipating level
to modest sales gains. Retailers of women's apparel see no immediate
relief from continuing aggregate sluggish sales and battles for
market share. Contacts suggest that women have become more reluctant
to buy clothing because of greater expenses for health coverage and
elder and child care, increased interest in home renovation and
inexpensive casual wear, and little concern for "chasing fashion."
Most vendor prices remain stable; by exception, recent increases in cotton prices are expected to boost prices of cotton goods this fall and winter. Most retailers, particularly off-price discounters, are struggling to maintain gross margins and profits. Only two contacts plan significant increases in their 1995 employment levels and capital budgets.
In contrast to the disappointing retail situation, the region's tourist industry reports extraordinary activity this summer, far exceeding expectations. Both Americans and foreigners are attracted to New England, reportedly by reasonably priced package vacations offering mental points of interest, much as outlet shopping, cultural events, and outdoor experiences.
Manufacturing
Most First District manufacturers contacted report that recent
revenues are flat to down slightly from their levels of a year
earlier. However, about one-third of the contacts indicate double-
digit sales gains for machinery and equipment. Although traditional
European markets have been sluggish, some companies report
substantial growth in exports to developing countries. Employment
generally has moved in the same direction as sales.
Manufacturers indicate that their input end selling prices are mostly flat. Prices of petrochemicals and copper are reportedly rising and shortages of memory chips are leading to some temporary price increases. One contact notes that an anticipated increase in paper prices did not materialize, while another reports that surcharges for chrome appear to be ending. Prices of computers and of machinery sold to automakers continue to fall.
Capital spending has increased over the past year at most contacts, with close to half the sample reporting a substantial increase. Much of the additional investment is being driven by the development of new products. In some cases, a changing product mix is also leading to selective hiring.
Most manufacturers believe that they will be operating in an environment of slow economic growth in coming months. Some are hopeful that new products or successful promotion of existing products will boost sales.
Temporary Employment Firms
Temporary help firms are holding their own in the New England
region, according to industry contacts. Although growth rates have
declined slightly from last year, sales continue to climb at a
healthy pace, averaging 15 to 20 percent increases over year-earlier
levels. Personnel supply firms expect to see continued strong demand
for temporary workers in the fall.
Commercial Real Estate
The apartment and industrial markets continue to expand in the First
District, while the office and retail sectors are lagging behind.
Contacts report negative absorption in downtown office markets in
Hartford and Providence, small gains in Boston (well below last
years strong pace), and only Portland showing significant
improvements. Suburban office markets are doing better than
downtowns, a pattern one respondent attributed to substantial new
leasing activity from small, fast-growing high-tech and software
companies that prefer suburban locations. Net absorption is strong
in the Massachusetts and Connecticut industrial markets,
particularly among smaller companies that require less than 50,000
squire feet of space. The lack of new multifamily construction
combined with strong demand is leading investors to propose new
apartments in suburban Boston.
Nonbank Financial Services
The majority of respondents at life insurance companies report lower
sales in the second quarter of 1995 than in the second quarter of
1994. The decreases are mostly due to weakness in sales of variable
annuities and individual life insurance. Employment at the
responding companies was flat to down in the second quarter, and
they expect flat or declining employment for the rest of the year.