July 1, 1983
Retailers in the First District are enjoying strong sales gains, with hard goods moving particularly well. However, many manufacturers have still not seen much evidence of a recovery. Sales of consumer and intermediate products have strengthened but orders for capital goods remain depressed. There is apparently considerable interest in capital goods, with a number of manufacturers reporting increases in the volume of inquiries and requests for proposals, but potential buyers are unwilling to make firm commitments. In both retailing and manufacturing, plans for price and wage increases in 1983 are moderate and are consistent with continued low rates of inflation. Most respondents are aggressively pursuing increases in productivity. In the banking sector, two of the largest banks in the District recently announced a merger.
Retailing
Retailers in the First District reported continued strong sales
gains this year, and optimism for similar or greater strength
through the third and fourth quarters. Prices are reasonably stable,
so gains will be mostly real; vendor prices are also stable, so
margins continue to be strong. Inventory positions are mixed, but
none was considered to be grossly unsatisfactory.
Reported sales increases for May were generally above plan and ranged from 7 to 20 percent over May last year. Hard goods were selling substantially better than soft goods, although men's sport apparel was also said to be performing well. Those contacts able to make interregional comparisons said sales increases continue to be stronger in New England than elsewhere.
Firms with sales below plan or with slower sales growth in May than in April reported higher-than-desired inventory levels, but foresaw no serious problems in bringing inventories back into line. One contact noted that "lessons learned during recent hard times" allowed them to support a greater volume of business with leaner inventories than previously thought possible.
Manufacturing
Manufacturing respondents say that the rate of recovery so far has
been modest at best. Capital goods producers, in particular, have
seen little evidence of an upturn. Inquiries about capital products
and requests for proposals have increased but potential buyers are
unwilling to commit themselves. While some respondents attribute the
weakness in capital spending to low capacity utilization and the
buyers' lack of financial resources, others see a lack of confidence
in the recovery as the primary problem. Capital goods sales to
utilities and other energy-related industries are especially weak.
Reports are more encouraging for consumer goods and intermediate
products. The improved outlook for the domestic auto industry is
beginning to have a positive effect, with sales increasing for a
variety of automotive products.
Several respondents report that demand has picked up in Canada and Europe. For most, however, overseas markets are weaker than those at home; the strength of the U.S. dollar is seen as a substantial barrier to exports.
Prices, Wages and Productivity
Retailers and manufacturers expect the rate of inflation over the
next two years to be moderate, and their own price and wage plans
support this view. No one plans very large price increases and a
substantial number will not increase prices at all in 1983. Buyer
resistance to price increases and low capacity utilization are the
most commonly cited reasons for restraint. For high technology
products, technological advances and competitive pressures will
bring prices down. Wage increases in 1983 will generally be smaller
than in 1982, and at some firms, merit will play a greater role in
the awarding of increases. Although recent productivity gains are
partly due to the current phase of the business cycle, most
respondents have major programs to increase productivity over the
long run. These programs involve greater use of performance goals,
changing purchasing and other procedures, and automating where
feasible.
Real Estate
The residential real estate market is vigorous, although borrowers
are said to be very sensitive to fluctuations in the mortgage rate.
Borrowers also have a strong preference for fixed rather than
variable rate mortgages. Substantial numbers of first time buyers
are said to be entering the market and, at least in the Boston area,
are choosing more modest single-family homes in more distant suburbs
over similarly priced, more lavishly equipped condominiums downtown.
Several developers expressed the view that condominiums have become
much less attractive investments. Apartment construction remains an
unattractive investment unless it is subsidized, but some lenders
say that the purchase of existing properties run by professional
managers can offer very good returns. There is great interest in
real estate-based tax shelters.
Banking
In the past six months, Massachusetts, Rhode Island and Connecticut
have passed interstate banking bills. These permit banks in New
England states with reciprocal legislation to acquire or merge with
local banks. In New Hampshire similar legislation was tabled. Maine
already had interstate banking legislation which is national in
scope. With the passage of the Connecticut bill in early June, CBT,
the largest bank in Connecticut, and Bank of New England, the third
largest bank in Massachusetts, announced a merger. The new bank will
be the second largest bank in the New England region and the largest
in terms of domestic deposits.