June 25, 1984
The expansion continues in the First District. Retail sales are strong. Manufacturers report that business is generally good, although some think that the rate of growth has slowed. Inventories have increased in both retail and manufacturing sectors; respondents do not consider this worrisome, however. Price increases continue to be moderate.
Retail
Retail sales in the First District grew strongly in May and June.
Inventories remained at satisfactory levels. Contacts reported no
signs of increased inflation, although one firm mentioned difficulty
hiring because of tight labor market conditions. The outlook was
optimistic.
Sales reported by First District merchants for May and June ranged from 10 to 40 percent ahead of last year on a comparable stores basis. Toys, promoted apparel, and summer hardgoods were especially strong. Sales of summer furniture, grills, and appliances accelerated during a spell of extremely hot weather throughout the Northeast. A national chain reported their New England stores' pace is no longer far ahead of other regions, not because New England is slowing but because stores elsewhere are picking up.
Several retailers mentioned that inventories were somewhat above plan or above last year, but this was appropriate to the volume of goods being sold. One chain with booming sales has rented additional inventory warehouse space so that it can continue to service customers quickly.
Price increases are quite moderate in general (under 5 percent), and prices are declining for electronic items. One department store reported "very competitive" conditions for apparel, with more frequent promotions than in earlier years.
Manufacturing
Manufacturing activity in the First District continues to expand,
although several respondents think that the rate of growth has
slowed. Government work is an important source of strength and is
expected to remain so for the foreseeable future, regardless of the
election. The demand for computers and related products is strong,
although individual firms are experiencing difficulties and some
suppliers are losing sales to foreign competitors.
Appliances and other housing-related products are doing well, as are automotive products. Demand is increasing for capital goods in general, but remains depressed for the large, long-cycle capital goods purchased by the energy, steel and farm equipment industries. However, several respondents noted that the commercial aircraft industry seems to have turned the corner.
The major concern of First District manufacturers is foreign competition in both domestic and international markets. One respondent comments that he faces direct competition from imports, his customers are moving overseas and buying from local suppliers, and other customers located in the United States are losing market share to imports. The dollar is seen as the primary reason for reduced competitiveness. On a more positive note, several respondents report that exports are picking up after a slow start.
Inventory-sales ratios have increased and are slightly higher than desired. Manufacturers became more confident about the strength of the recovery and more concerned about missing out on sales. They decided to build up their inventories a bit, but a slight slowing in the rate of growth left them with higher ratios than anticipated. This is not seen as a problem.
Price increases are more numerous but remain modest, ranging from 2- 5 percent. Buyers are said to be very choosy and several respondents have had to back down from proposed price increases.
Respondents attitudes towards capital spending seem to be more varied than in past months. The emphasis in capital spending is stilt on productivity improvement and particularly on making a lot of fairly small changes to boost productivity. Several respondents emphasized their conservative approach to investing. However, in a departure from the recent past, several said they are expanding or making major investments in new production technologies.