Beige Book Report: Boston
November 1, 1995
Expansion continues at a lackluster pace in the First District. Although most retailers report sales declines from a year earlier, tourism is up. while some manufacturers continue to experience steady growth, half the manufacturers contacted have seen sales weaken in recent months. Commercial real estate in New England is sluggish, and the insurance industry reports mixed results.
Retail
Most retailers in the First District report sales declines relative
to year-earlier levels during September and October, with decreases
ranging from 1 to 20 percent. Apparel contacts, in particular, are
disappointed that, for the second year in a row, a back-to-school
upturn did not occur. Soft sales extend to most non-apparel
retailers, including homebuilding/lumber companies; the one
exception is a chain with double-digit growth from a year ago.
Respondents plan to use frequent promotions during the approaching
holiday season, hoping to achieve modest sales gains over last year.
Most vendor prices remain stable; however, promotional pressures are eating away at gross margins and profits. The New England retail landscape continues to shift as several off-price retailers disappear or reorganize under the protection of Chapter 11. Only one contact plans significant increases in capital budget and employment levels in the coming year.
By contrast, the region's tourist industry reports significant gains in September and October compared to the previous fall's strong performance. Earlier concerns of potentially disappointing foliage did not materialize and several state tourist offices report a rise in hotel and motel occupancy rates, attraction attendance, and general tourist traffic.
Manufacturing
Manufacturing contacts in the First District indicate mixed trends.
Sales of some consumer nondurables and specialized equipment are
comfortably above year-ago levels. But about half of this month's
sample, including firms in the paper and automotive products
industries, report that sales growth has weakened in recent months
compared to earlier in the year. Contacts generally indicate that
trends overseas are stronger than in the United States, with Europe
showing signs of recovery and most emerging markets performing well.
Many manufacturers report some softening of prices that had sharply escalated earlier in the year, including paper and packaging, metals, plastics, cotton, and synthetic fibers. Finished goods prices generally are increasing only 1 to 4 percent at annual rates, with higher inflation for paper products. Contacts selling to the aircraft, automotive, and apparel industries are experiencing a squeeze on profits as a result of their limited scope to raise prices.
Just over half the contacts report that their employment is little changed from a year ago; most of the remaining manufacturers have cut their work forces. Typical 1995 wage and salary increases are in the range of 2 to 4 percent, with higher increases for some high technology employees or in tight labor markets. About one-third of the contacts are contemplating a wage freeze and/or employment cutbacks in 1996. Most respondents report heavy capital expenditures this year, but one-third are now cutting back because of budgetary constraints.
Manufacturers expect modest growth in the U.S. economy in the next year. Some are optimistic about their own company's prospects based on export opportunities or a recovery for their industry, while others are concerned about having to reduce costs or reorient their mix of products.
Temporary Employment Firms
Temporary workers remain in high demand in New England, where
contacts report that outsourcing is as popular as ever. The clerical
sector enjoyed a strong summer season, while activity in the high
tech areas has picked up during the fall. Temporary service agencies
report a rise in vendor-on- premises operations, in which they bid
to handle all the hiring for a client firm.
Commercial Real Estate
Respondents agree that commercial real estate in the First District
is moving at a sluggish pace. In the Boston office market, asking
rents have increased a little bit, but net absorption is barely
growing and leases are being signed at the same rates as last year.
The suburban market is in better shape, with effective rents
improving in some areas, although ample space is still available for
all tenant sizes. Contacts report that office leasing in Hartford,
Springfield, and Providence is languishing, while the Portland
market shows some moderate gains. One contact noted that capital is
plentiful to finance the purchase of existing (well-leased)
buildings, because investors perceive New England real estate as
having low downside risk at this time.
Nonbank Financial Services
Some life insurance companies report higher sales in the third
quarter of 1995 than in the third quarter of 1994, others report
declines. Employment at responding companies is flat to down. One
company expects a large reduction in employment in the fourth
quarter because of a merger. Property/casualty insurers face losses
in the fourth quarter attributable to this fall's hurricanes.
The Outlook
The New England Economic Project (NEEP), a nonprofit forecasting
group, released its semi-annual regional forecast in late October.
NEEP has revised its forecast downward to show a 1.1 percent annual
rate of total employment growth in New England in both 1995 and
1996. Health, business, and other services are projected to expand
employment at an above-average rate. The number of jobs in the
finance-insurance-real estate and transportation-public utilities
industries is expected to remain virtually unchanged, while
manufacturing employment continues to slip.