Beige Book Report: Boston
September 11, 1996
The First District economy continues to expand as the summer draws to a close. Manufacturers and personnel supply firms report solid growth. Most retail contacts indicate that sales were better than expected in August. Investment management firms are growing modestly. Residential real estate markets in much of New England are in good shape. With exceptions, input and selling prices are said to be stable while wages and salaries are up 2 to 4 percent.
Retail
Most retail contacts in the First District are upbeat about the
economy and report higher-than-expected sales, particularly in
August. Retailers of high-priced apparel and home building materials
cite sales increases from year-earlier levels as high as 37 percent
in July and August; by contrast, two respondents note sales declines
of 3 to 9 percent during the summer months compared with a year ago.
Retail respondents are cautiously building inventories in
anticipation of holiday sales, and they expect 2 to 10 percent sales
gains for the remainder of the year.
Vendor and customer prices remain stable; by exception, the retail price of leather has risen 5 to 10 percent and the cost of lumber continues to move up. Contacts note that offering fewer sales promotions has generally improved gross margins; profits, however, are mixed for the first half of the year. Capital spending increases this year are limited primarily to improvements in technology. Only one respondent cites a major reduction in employment; most others have level job counts and anticipate wage increases of 2 to 4 percent for the year.
Manufacturing
Most manufacturing contacts in the First District report that
overall sales are solidly higher than a year ago. Incoming orders
generally suggest a continuation of current trends. Results for
similar products vary across firms, however. For example, one
producer reports continued double-digit increases in the demand for
plastic parts, while another reports sharp declines. Such unevenness
extends to the medical, industrial, and utility equipment markets.
On the whole, inventories are reported to be roughly in line with company targets. However, a contact in the paper industry is curtailing production in order to eliminate excess inventories. A producer of industrial machinery intends to add to inventories, while a metals fabricator reports being unable to do so because the company is operating at full capacity.
Manufacturers report that selling and input prices generally are little changed from a year ago. By exception, the price of memory chips has fallen by half in the last few months. Thus far, this development has not led to an intensification of the downward trend in computer prices, however. Paper prices have recovered a bit from their recent lows but remain far below year-ago levels. Plastics prices have subsided after rising earlier this year, while some metals prices continue to increase a little.
Most manufacturing contacts indicate that their U.S. employment is flat to slightly higher than a year ago. Wages and salaries have increased 2 1/2 to 4 percent, with the lower end of this range reflecting contracts negotiated in previous years. Businesses recruiting computer specialists or engineers indicate that they must offer attractive salaries and profit-sharing or discounted stock plans. Nevertheless, contacts report that they are able to hire the employees they need even in such sought-after professions.
Manufacturers typically are continuing to spend the same amount on capital as last year. Such spending represents sizable increases in capacity for about one-third of the contacts.
Temporary Employment Firms
Personnel supply firms in the First District report very good
business in the summer of 1996, with revenues expanding 20 to 30
percent from a year earlier. Summer sales rose in the clerical
sector because of student workers and leveled off in high technology
fields, trends that typically reverse in the fall. Temporary-to-
permanent job conversions have subsided, and workers reportedly
continue to leave full-time payroll employment to work on a contract
basis for higher hourly pay and state-of-the-art projects.
Nonetheless, demand for qualified temporary labor is rising faster
than supply, so wages have risen. As competition continues to
increase, contacts are exploring new recruiting methods such as the
Internet. Double-digit revenue growth is anticipated for the
remainder of 1996.
Residential Real Estate
The residential real estate market remains in good shape across much
of New England. Contacts report that sales of existing homes in the
last two months are above year-ago levels in Connecticut, Rhode
Island, and Massachusetts. A respondent in Maine reports that the
spurt of sales earlier in the spring has slowed substantially in the
last two months. While the recent activity in Connecticut and
Massachusetts reflects a steady trend of sales growth over the last
year, reports from Rhode Island and Maine show no sustained pattern
of gains or losses.
Inventory levels are reported to be adequate in most parts of the region except Massachusetts, where one contact suggests that low inventories could lead to diminished sales in the rest of the year. New construction remains solid overall, and credit for consumers and builders is reported to be readily available. Contacts note signs of decline in real-estate-related employment in southern New England, with consolidation reported among brokers in Rhode Island and appraisers in Connecticut.
Nonbank Financial Services
First District investment management firms report modest increases
in assets under management since the beginning of the second
quarter. Inflows into small company and growth funds were still
positive despite the July correction in stock prices, but bond funds
continued in net liquidation. Most respondents plan to increase
employment during the rest of the year, but some report that it
takes a long, time to fill open positions, particularly in the area
of retirement planning.