December 6, 1983
The recovery is gaining in strength and broadening in the First District. Retailers report healthy sales gains in recent months and an optimistic outlook for the critical holiday selling season. Inventories are at planned levels or perhaps a little higher. Manufacturers are also experiencing order increases and are looking forward to a good 1984. The demand for capital goods remains weak overall but signs of an upturn are increasing. In construction, the number of multi-unit housing permits authorized continues to fluctuate sharply from month to month. Permits for single unit housing are holding up despite increases in mortgage rates. Most state governments in New England experienced difficulty balancing their budget in FY83 and increased a variety of smaller taxes. As a group, the six states will move from a small revenue shortfall in FY83 to a small surplus in FY84.
Retail
Merchants in the First District report that recent sales growth has
been strong. The results were generally better than expected,
although one department store came in slightly below its "very
ambitious" plan. Growth occurred across the board, but lines cited
as especially strong included telephones, electronics, toys,
domestics, and energy-saving do-it-yourself products. Two chains had
more growth in Rhode Island than elsewhere in the region, probably
because the recession more seriously dampened last year's
performance in the state.
Local newspapers recently reported concern among retailers that some products would not be available toward the end of the Christmas season. However, the department stores contacted said they were not worried about product availability (except for widely-expected shortages of Cabbage Patch dolls) In this light, inventories slightly above plan were seen as a positive development. A building goods specialty house, whose business is not at all Christmas- related, also reported satisfactory inventory levels.
In spite of a slow start because of bad weather the day after Thanksgiving, the Christmas season is expected to be very good. One merchant said consumers are "getting back into the swing of buying" now that the uncertainty and instability of the recession appear to be behind.
Manufacturers
Manufacturers in the First District report increasing activity.
Areas that were strong before continue to do well - defense,
consumer goods, housing-related products, consumable supplies and
components. The demand for capital goods is still weak overall, but
signs that an upturn is near are increasing. Some capital goods
manufacturers have seen substantial order increases in recent
months; most report more requests for quotations. The emphasis in
capital spending is on modernization and productivity enhancement
rather than expansion. Most firms are hiring, but a few are still
cutting back. Those being hired are direct labor, sales people and
engineers. No one plans to increase indirect and support staff.
All the firms contacted are optimistic about 1984—even firms that have seen little pickup to date. However, one machine tool representative noted that 1985 would also have to be good for the firm to experience a real recovery, and several in this same industry said that foreign competitors have made permanent gains in market share. Much of the optimism about next year is based on the expectation that the auto industry will make some very serious capital commitments. Materials prices are expected to increase only modestly with the exception of some metals (aluminum, brass, zinc) and possibly pulp.
Construction
The number of housing permits authorized in New England declined in
September. Most of the decrease was in multi-unit permits, which
have fluctuated considerably during the past year. Single unit
permits fell only slightly and remain at approximately the same high
level as in the spring before mortgage rates increased. The
effective rate on regular 25 year mortgages in New England averaged
just above 14 percent in September, compared to just below 14
percent in mid-summer. A building materials specialty house reported
sales to contractors have been very strong all year, with 30 to 50
percent year-over-year growth month after month.
State Government Finances
Most of the New England states experienced budget difficulties in
FY83; New Hampshire, Vermont and Connecticut ended the year with
deficits. All states have based FY84 budgets on projections of a
moderate economic recovery. Most have increased combinations of
corporate, cigarette, gasoline and alcohol taxes. Rhode Island
increased its personal income tax. Massachusetts is stepping up the
enforcement of tax collections. For all six states together, total
state revenues are projected to increase 8 1/2 percent, expenditures
7 percent, and the region will move from a small overall deficit to
a small surplus.
Banking
The rush to interstate banking continues. Bank of Boston, the
largest bank in Massachusetts and the New England region has agreed
to acquire Rhode Island's third largest bank. This plus other recent
acquisition agreements will give Bank of Boston a presence in five
of the six New England states.