January 28, 1986
The First District economy held steady through the end of 1985. Retailers report a generally satisfactory holiday selling season with fewer price mark downs and higher profits than a year earlier. Inventories are in reasonably good shape and merchants are optimistic about 1986. Some manufacturers are seeing modest improvements in orders, others report that orders remain slow; most of those contacted expect 1986 to be a better year for sales and earnings than 1985, but still not particularly good. Banks in the District continue to perform well.
Retail
New England retailers report level or modestly increased sales
during the holiday period. A week shorter selling period between
Thanksgiving sad Christmas contributed to weak November results, but
December sales at several stores were substantially above 1984. For
the fiscal year ending in January 1986, most of those contacted
expect to attain double digit sales growth; while below the previous
year's increases, these results are not at all disappointing when
retailers compare results with affiliates in other regions.
Inventories are generally close to planned levels. Contacts cited this as one reason for a less "promotional" Christmas: having learned from last year, they anticipated overall demand more conservatively (and more accurately) this year. With lower inventory carrying costs and fewer markdowns, profits were stronger this season. Some individual product lines, of course, performed better or worse than expected. Video cassette recorders, televisions, tapes and records were widely cited as strong sellers, while reports on toys were mixed.
Projections for 1986 are upbeat. Merchants expect the coming year to be as good as or better than 1985. A recent survey of analysts cited New England's low unemployment rate and high per capita income as reasons for the region's retailers to continue to outperform their counterparts in the rest of the country.
Manufacturing
First District manufacturers report that recent orders have been
fairly flat or increasing modestly. Several respondents commented
that the commercial aircraft business is improving, albeit slowly.
However, sales to the auto companies, which were very strong in
1985, are expected to weaken in 1986. Sales to the farm equipment
and machine tool industries remain depressed. High tech contacts
have seen slight increases in orders for some products, but the
semiconductor business continues to be very slow.
Several of the firms contacted have been reducing employment for some time and are continuing to do so. However, these staff reductions are occurring through attrition rather than layoffs, as was the case in earlier months.
Respondents plan to invest as much or more in 1986 as they did in 1985. The importance of keeping abreast of technology and the need to develop new products were cited as motivations for capital spending. Several contacts mentioned new product introductions as critical to sales increases expected in 1986.
According to several firms, sales in Europe picked up quite markedly in the second half of 1985. This improvement is attributed, at least in part, to the decline in the value of the dollar from the highs of last spring. For high tech producers, sales in the Far East were strong throughout 1985 and remain vigorous.
A regional business magazine recently surveyed securities analysts regarding the prospects for major New England firms in 1986. In general, the analysts expect substantial improvements in the sales and earnings of firms in the traditional metals and machinery industries. For high technology companies as well, 1986 is expected to be a better year than 1985, but earnings prospects vary considerable from one firm to another. According to the analysts, the outlook is more promising for computer companies than for firms involved in the semiconductor business.
Banking
Banks in the First District enjoyed strong earnings in 1985, with a
couple of large institutions reporting fourth quarter earnings that
surpassed the expectations of security analysts. According to a
recent survey of analysts, the growth in bank earnings will be more
moderate in 1986.