October 23, 1985
Business conditions in the First District have changed very little in recent months. Most manufacturers and retailers report incoming orders or sales below plan but above last year. Inventories are not excessive. Capital spending budgets reflect both merger activity and moderate optimism about the remainder of the year and 1986. Although slower than several months ago, the real estate market remains healthy.
Retailing
Growth in retail sales in September was generally weaker than in
August, partly because an early Labor Day shifted some back-to-
school sales to the earlier month. Taking the two months together,
sales in most stores ran below plan but well above last year.
October, according to early reports, is also below plan. Several
contacts said Hurricane Gloria had a dampening effect on nonfood
shopping.
In several department store chains, furnishings, linens, and household goods are performing quite well, but apparel is weak. Several merchants also cited surprisingly strong toy sales, mostly in traditional lines. Inventories, while higher than planned in some stores, are not a source of concern. Price increases are generally moderate.
Most chains are planning to open their "usual" number of new stores in the next 15 months. Some expansions of warehouse and distribution facilities are also planned. In spite of low unemployment rates in New England, two merchants serving small towns reported no trouble hiring "high quality and steady" staff for new stores.
Some retailers have revised downward their expectations for the remainder of the year in light of recent performance, but others remain as confident as they were earlier. The consensus forecast is quite optimistic: comparable store sales are expected to be 9 to 10 percent higher in the fourth quarter of 1985 than a year earlier.
Manufacturing
Manufacturing activity does not appear to have changed much in the
past several months. Respondents report that incoming orders for
most products are holding steady at rates somewhat below plan. The
auto industry remains a very important source of strength; although
there has been little change in recent months, a variety of
automotive products are said to be doing well. Defense spending is
another source of ongoing strength. Demand for housing-related
products has picked up according to one respondent, but others in
this industry see no change. Reports from capital goods
manufacturers also vary; improvements appear related to the
introduction of new products.
A majority of manufacturing respondents are budgeting more for plant and equipment in 1986 than they spent in 1985, although not always more than they originally budgeted for 1985. In addition to normal replacement spending, the emphasis is on product development and cost containment. Several respondents commented that their capital spending plans are being shaped by their involvement in mergers and acquisitions.
In some cases new affiliations are resulting in higher levels of spending, but in others they are constraining capital expenditures.
Inventories are said to be in reasonably good shape. Electronics may be an exception; according to one respondent, the computer industry in its boom period a year ago double and triple ordered and suppliers still have not worked down the resulting excess. Respondents have not seen any sizable increases in the prices of materials and components. Several mentioned that it is very difficult to increase their own prices.
Manufacturers are looking for demand to strengthen slightly in the fourth quarter; 1986 is expected to be much the same as 1985, possibly a little better.
Real Estate
After a very busy summer, realtors in New England report slightly
slower but healthy activity in residential markets. A majority of
those contacted throughout the region still face a sellers' market
and many houses are sold at asking price. However, prices in most
markets are rising less rapidly than several months ago even though
mortgage rates are steady or down slightly. Condominiums are selling
well in urban areas, but buyers of vacation homes are demanding at
least three bedrooms.
Vacancy rates for commercial real estate remain low in downtown areas, especially Boston. Yet in smaller urban areas and many suburbs, new commercial and industrial space has not been absorbed.