September 20, 1983
Manufacturers in the First District report that business conditions are looking up. Demand has improved for electronics, computers, original equipment automotive products, and components related to the general level of industrial production. Demand remains weak for many capital goods, although the level of inquiries is high. Basic industries, such as autos and farm equipment, are said to be interested in making capital expenditures but unwilling to make major commitments. Manufacturing inventories are in good shape for the most part. In the retail sector, First District department stores report that the pace of recovery seems to have slowed. Sales gains in July and August were both smaller than expected and smaller than the gains enjoyed earlier in the year; as a consequence, inventories are. slightly higher than desired. The slowdown was attributed to the unusually hot weather which caused an exodus from the metropolitan areas. Reports of a very good tourist season in more rural areas seem to confirm this hypothesis.
ManufacturingMore and more First District manufacturers are seeing an upturn in orders, but perceptions as to the strength of the recovery vary considerably. The defense business is good. Consumer products like appliances have been selling well for some time now. Demand has increased for original equipment automotive products and for components and supplies related to the general level of industrial activity. Various high technology companies report increased orders; the electronics industry is doing particularly well. However, demand is still weak for many investment goods—especially those purchased by the auto, off-the-road equipment, and energy industries. Many capital goods producers say inquiries have increased substantially and sales people are very busy, but so far, these inquiries have produced few new orders. Customers are not willing to make major commitments. This reluctance to commit is attributed to low capacity utilization and low, although improved profits.
However, one manufacturer noted that high real interest rates make it more difficult to justify capital expenditures and another said that, in the area of industrial automation, firms are taking time to study and analyze different alternatives. The recovery in the capital goods industries is thought to be slower than in
1975-76.
Several firms report that exports are improving, but one very large exporter which had enjoyed fairly good sales during the recession has seen a sharp dropoff in the past couple of months. The competition from European producers is said to be fierce, as Europe tries to export its way out of the recession.
Employment is increasing modestly at most of the manufacturing firms contacted, but one firm which has already drastically reduced its workforce is contemplating still another major layoff. Two high technology companies are aggressively recruiting in the professional and technical areas; they say professional manpower is scarce and expensive.
Inventories are in good shape except in some segments of the machine tool industry where they are still much too high. Prices continue to be well behaved, but are no longer declining. One respondent reports that he sees more attempts to increase prices, but these are rarely successful.
Retail
Retailers in the First District reported smaller than expected sales
increases in July and August. Compared to sales volumes in the
previous year, sales gains were smaller than in the first half of
1983. As a result, inventories are slightly above desired levels.
However, most merchants expressed confidence that sales gains would
again be strong this fall.
Two department store chains, centered in major cities, cited the unusually hot weather as a possible explanation for the slack sales, hypothesizing that local residents left town more frequently this summer than last. This view seems to be supported by reports of a strong tourist season in northern and western New England. Also consistent with this hypothesis were reports that the weakness occurred across the board—no specific product lines were especially strong or weak. Since they see no reason to expect the unseasonal weather to continue long into the fall, the merchants are optimistic about a return to the strength shown earlier in the year. However, one retailer with affiliated stores in other regions doubts that First District stores will hold the sales lead they have enjoyed in recent months, not because of local weakness, but because the other regions' previous year's sales were so weak.
Somewhat excessive inventories have resulted from two factors. First, slower-than-expected sales gains left more merchandise in inventory than planned. Second, several retailers said the strong spring recovery had encouraged then to buy more aggressively and bring goods in earlier than usual.