Beige Book Report: Boston
September 13, 1995
Business activity in the First District is generally expanding, but more slowly than a year ago. Both retailers and manufacturers expect continued slow growth in coming months. Price pressures are reportedly moderate. The residential real estate market is sluggish in most of the New England states.
Retail
This summer's hot weather appears to have curbed shopping activity
in New England. First District retailers of hard and soft goods
report disappointing, below-plan sales in July and August, ranging
from level to 8 percent gains over year-earlier levels. Home
improvement and lumber chains cite sales declines of up to 20
percent, which they attribute to a slowdown in the building industry
and the economy. Retail respondents continue to express concern
about consumer confidence; their expectations for the remainder of
the year range from moderate sales decreases to 10 percent gains.
Price reports for materials are mixed, with declines in lumber and cotton prices and increases for fabric, foam, and paint. Retailers say they and their manufacturing suppliers are hesitant to inch up prices, given this summer's slow shopper traffic. Two contacts plan to expand stores or open new ones; none, however, plans to increase employment.
Manufacturing
Most First District manufacturing contacts report that sales are
ahead of year-ago levels. Computer-related demand is very strong in
most cases, and gains are reported also for aircraft, medical
equipment, and items related to nonresidential construction. By
contrast, makers of consumer durables--including auto parts, home
furnishings, and jewelry--report that sales are softening, with some
experiencing declines relative to a year ago. Apparel-related
textile sales remain sluggish.
Over the past year, manufacturers have experienced higher costs for a number of materials, including petrochemicals, paper and packaging, metals, and cotton fibers. In most instances, however, cost increases now appear to be abating; some manufacturers attribute this change to soft-demand. One-third of the contacts report that they have raised selling prices over the past year, mostly in the range of 2 to 8 percent. Remaining prices are generally flat, with some decreases noted for computers and medical equipment.
Most respondents foresee little change in the size of their work forces in coming months. Those who are hiring report that the only area of difficulty is finding qualified specialists in computer-related fields. Labor costs appear to be rising only modestly.
The majority of contacts report that capital spending is increasing, with some making very substantial investments to expand capacity and/or improve productivity. Two contacts mentioned added investments in Mexico.
Manufacturers generally expect the U.S. economy to grow rather slowly over the next year, with little inflation. Most feel that the macroeconomic environment and industry-specific factors will create reasonably good results for their company, but two said an interest rate cut would be desirable.
Residential Real Estate
Most contacts continue to report sluggish sales of residential real
estate in the First District, although prospects are up slightly in
the last two months. Respondents in Connecticut and Rhode Island are
the most pessimistic, noting that sales activity is still at below-
normal levels, while reports from Vermont point to improving
conditions. Activity in Maine has bounced around, with the latest
movement suggesting a slight slowdown. New Hampshire activity has
leveled off. Contacts attribute a significant reduction in sales of
existing homes in Massachusetts to newly-passed environmental
regulations. For the first time in several years, sales of very
high-priced homes and new construction in Massachusetts have slowed.
The market for low-priced homes is reported to be in the best shape
in all states, partly because of an expansion of low down-payment
loans and other special credit programs.
Nonbank Financial Services
Investment management firms report increased assets under management
in the last six weeks. The increases are due to the rising market
value of the assets and strong sales of domestic equity funds,
particularly small company and growth funds. Bond funds experienced
small but positive inflows. Municipal bond funds continue to be in
net liquidation because of investor concerns about tax reform. Most
respondents report stable or increasing employment levels.