May 6, 1986
Expansion in the First District remain unbalanced. Manufacturing activity is generally slow but some firms report encouraging signs. Retail sales are growing modestly, with upscale merchants doing better than discounters. Financial markets are active; real estate and businesses associated with home building are robust and likely to continue so. Outside the real estate sector, prices are generally stable as both consumer and producer markets remain highly competitive.
Retail
Sales results in the First District were mixed but get generally
satisfactory in March and April. Several department store chains
report "very good" increases of 6 to 10 percent over last year;
another is disappointed with "sluggish" growth in comparable store
sales—below plan but 6 to 8 percent ahead of last year. Hardware
and building supply stores report excellent performance. Retailers
doing well cite a combination of factors that leave more money in
consumers pockets, including failing oil prices and lover interest
rates. One discount chain with slow sales suggested that home
mortgage refinancing is a more positive factor for high and middle
income customers; among those contacted upscale merchants are more
upbeat than those serving low to moderate income customers.
Inventories are a little heavier than planned in a number of stores, but not a source of concern. In some cases, the pace of restocking has been slowed; others prefer to wait before they take action to see if the situation corrects itself.
Several contacts said they are having difficulty hiring sales help in stores or clerical workers in the home office. Labor markets are reportedly tightening even outside the region's major urban areas.
Prices are generally steady, except for in upward trend in lumber and plywood. Department store buyers report that foreign prices are rising and that they will therefore substitute some domestic goods for imports. According to one contact, consumers don't see much price change because the marketplace is still very competitive and promotional.
Retailers expect the rest of 1986 to be strong in New England—"not a boom but good solid demand". These expectations derive from the factors mentioned above, plus reports by those stores with national affiliates that New England again outpaces other areas.
Automobiles
Reports of sales activity from automobile dealerships are mixed for
both imports sad domestics. Those doing well claim that tax refunds,
low gasoline prices, and warn weather are responsible. Dealers with
disappointing sales suggest that large scale incentive programs late
last year captured potential buyers from this spring. Domestic car
purchases are shifting somewhat from compact to full-sized models.
Truck sales are consistently strong.
Manufacturing
Manufacturing performance continues to be mixed in the First
District. Firms producing computer-related items report sluggish
sales and orders with some exceptions in the office automation area,
while producers tied to homebuilding and other activities responding
directly to consumers show signs of picking up. Tools, equipment,
and other operations related to the oil industry are down. Some
firms dependent on the capital spending of industries other than
energy have seen orders improve but others report their industrial
customers continue to postpone decisions about new equipment.
No major improvements are yet occurring as a result of the decline in the U.S. dollar. Several firms note the increased dollar value of sales made in foreign currencies, and one reports shifting some export production work from offshore facilities to its U.S. plants. A contact in the computer industry attributes the lack of real improvement in overseas sales to two factors: first, most of their competitors in Europe are other American manufacturers; second, declining prices create an incentive to postpone purchases in anticipation of further declines.
Inventories are in good shape and head counts are also lean. Capital spending plans are generally unchanged, and reflect programs to improve productivity, not to expand capacity with bricks and mortar.
The outlook is hazy. Firms are moderately optimistic, but in some cases this means they hope 1986 will be level with last year. Current order rates provide no indication that activity levels will shift significantly in the near future, but inquiries and proposals have picked up noticeably for two computer-related concerns.
Real Estate
The residential real estate market in New England is flourishing,
with overall activity very high. Demand is outpacing supply; prices
are climbing at a rate similar to last year and many homes are being
sold at asking price. While the majority of those buying are
upgrading to larger homes, low mortgage rates may also have brought
additional first time purchasers into the market. Condominiums are
maintaining their attractiveness in urban centers, but are weaker in
some suburban areas.
Activity in the commercial real estate sector is healthy. Absorption rates are high. Prices for retail space in Boston are reportedly escalating, but prices for commercial space elsewhere are rising only slightly.
Finance
Consumer lenders in the First District report increased activity.
Home equity loans, generally being used to pay off debt incurred at
higher interest rates, are up the most; automobile and personal
lending are also increasing.
Residential mortgage activity is at its highest level in several years, causing extensive processing backlogs. Most residential mortgage loan applicants are refinancing existing higher-rate loans. Interest rates are reportedly expected to continue declining, keeping activity at a high level.
Commercial loan demand continues to be strong, especially for commercial mortgages. Contacts report that businesses are refinancing existing debt as well as borrowing for expansion, and both of these activities are likely to continue at high levels.