November 2, 1983
Retailers in the First District are enjoying strong sales gains and more and more manufacturers are participating in the recovery. Retail inventories are a little higher than desired but not so high as to be troublesome. Manufacturing inventories are in good shape. Most of the manufacturers contacted are cautiously recalling production workers. Despite the pickup in manufacturing activity, the demand for working capital is said to be unusually low for this stage in a recovery.
Retail
Retailers in the First District reported strong sales growth in
September and for the year to date. Inventories may be slightly
above plan, but not at levels that cause concern. Expectations are
for continuation of recent strength at more moderate levels.
Two chains had sales in recent months 15 to 20 percent ahead of last year, well ahead of their expectations. Success was attributed to long term promotional campaigns and more widespread consumer enthusiasm for shopping. However, a third merchant reported only 9 percent growth, which he called disappointing in comparison to recent growth rates of 25 to 40 percent, although "still quite respectable." Several of those contacted mentioned that low rates of inflation make these increases real and therefore even more substantial than they first appear to be. No specific products were cited as especially strong or weak, although one retailer concentrated in soft goods said he believed hard goods were picking up faster. However, another reported sales of furniture less strong than housewares or paper goods. Sales of a nationwide chain continued to be stronger in New England than elsewhere.
Two retailers reported inventories above plan, but both said they were not so high as to be troublesome. In one case the increase was partially due to a change in strategy to provide better customer service.
Projected sales growth over the next few months ranges from 8 to 15 percent. All respondents mentioned that the Christmas season, beginning soon, will be critical in determining overall growth and profits.
Manufacturing
Reports from the manufacturing sector are generally encouraging. In
a September survey of purchasing agents, more than 50 percent of the
respondents reported that orders were up from the previous month and
more than 60 percent reported increases in production. The survey
also showed a majority of respondents with higher employment levels.
Demand appears to be strongest for automotive, defense and housing-
related products; supplies and other products related to the general
level of industrial activity; and products purchased by the
electronics industry. The recovery also appears to be filtering down
to the capital goods industries; orders and backlogs have improved
and several respondents are looking forward to a good 1984. Demand
remains depressed for materials used in commercial construction, oil
drilling and power plant equipment, and products purchased by the
farm equipment industry.
The strong dollar is hurting export sales and adversely affecting the dollar-denominated profits of foreign subsidiaries. The latter is particularly a problem for Latin American operations. Several firms noted that their Latin American subsidiaries appear to be doing well until one translates hack to dollars. There seems to be some optimism that conditions are improving in Mexico. Sales in Europe are much slower than in the United States, although some manufacturers see an improvement over a year ago.
Most of the firms contacted are increasing employment, but they are proceeding very cautiously. Only direct production workers are being recalled, no indirect or office personnel. The one major exception is a firm which is aggressively recruiting engineers to support a large research initiative.
Inventories are generally in good shape. Prices are holding steady, except for the price of foreign steel which is increasing. Manufacturers seem confident that the recovery will continue through 1984.
Commercial Banking
There is considerable turmoil in the First District banking industry
as banks compete to take advantage of recent legislation permitting
interstate mergers and acquisitions within the region. Consumer loan
demand is strong but commercial loan demand is sluggish for this
stage in the recovery. The competition for commercial loans is keen
and margins have eroded.