May 6, 1985
Economic activity has slowed in the First District in recent months. The slowdown has occurred in both the manufacturing and retail sectors, but some individual firms continue to show substantial growth. Retailers' sales fell below plan in some cases but continue to exceed last year's levels. In manufacturing, the national slowdown in office equipment and computers has been well publicized, and New England's high tech firms have been among those experiencing difficulty. The region's traditional industries report mixed results, but remain optimistic about 1985.
Retail
Retail sales have slowed recently in the First District. The
weakening is not universal, however, hitting some "upscale"
department stores for example, but not a discount chain, and showing
wide geographic variation. The downturn is not substantial, and
merchants remain moderately optimistic about 1985.
The shift of Easter from April last year to March this year complicates the interpretation of spring sales figures, but March was not an exceptional month for New England retailers. Apparel and other soft goods—traditional Easter items—sold well during the month, but sales in other areas, including home products, pets and sporting goods were disappointing. Early signs suggest that April is following the March trend, and without Easter the measured increases against April last year will be very small or negative. First quarter sales (February through April) will end higher than last year, but below plan in a number of cases. Thus the problem is slowing rates of increase rather than absolute declines. Inventory levels are close to plan.
Planned remedial actions depend on merchants' explanations of current trends, but generally include attempts to cut overhead expenses, more careful targeting of promotional activity, and downward adjustments in sales projections for the fall. The sales slowdown has not caused reductions in hiring or cutbacks in planned new store openings.
Manufacturing
Manufacturing activity in the First District has slowed. The
slowdown is particularly striking in the high technology sector,
which had been growing very rapidly. A number of firms have reported
decreases in earnings and several are laying people off. Some of the
layoffs are small but others involve hundreds of employees. A
sluggish domestic market and the strong dollar are blamed for the
disappointing performance; in addition, individual high tech
companies have encountered difficulties launching new products.
Traditional industries have also seen some slowing but the firms contacted do not expect this to persist and look for 1985 to be a good year overall. Thus, in metalworking, production levels among respondents are good but new orders have tapered off a bit. The slowing in orders has not been pronounced enough to induce reductions in capital spending plans or layoffs, although some firms are not actively filling job vacancies as they occur. The aircraft segment of the metalworking industry is an exception to the slowing in orders: the military component has been strong for some time and is still strong; the commercial component has been weak but is now picking up. One metalworking contact also noted a recent pickup in auto-related orders and considerable quotation activity for large auto programs that are expected to become orders next year.
Labor markets in the region remain tight, especially in southern New Hampshire. Firms mentioned short supplies of good industrial salespeople and warehouse workers as well as continuing scarcities in professional specialties such as electronic and software engineers.
Price increases seem to be little more prevalent but still modest. A couple of firms contacted have recently raised prices. One respondent reported increasing prices 5-6 percent; however, the new prices are intended to hold for two years, so that the annual increase is only half that. In a recent survey of New England purchasing agents, a majority reported no change in prices from the previous month; but the proportion reporting increases, 40 percent, was the highest in some time.
Capital spending will be higher in 1985 than in 1984. In a number of cases, the fraction of 1985 spending for replacement and upgrading of machines will be higher and the fraction for expansion of capacity lower than in 1984. Firms want both lower costs and increased flexibility to adapt their machines to shifts in demand.