August 5, 1986
Overview
Economic activity in the First District remains unbalanced. The
manufacturing sector is in the doldrums. Retail sales were
disappointing in May and June, but picked up in July. Both
manufacturers and retailers report vigorous price competition.
Reports from the real estate sector are mixed. The Boston area is
experiencing a seasonal slowdown in home sales, while other parts of
the region continue to experience very strong sales activity.
Retail
Department store sales in several New England chains were below plan
in May and June and even lower than last year in some cases. The
first few weeks of July, however, look much better, lending support
to retailers' optimism about the record half of the year.
Inventories are somewhat high but still not a source of concern,
according to those contacted. Prices are stable but margins appear
to be shrinking.
After lackluster sales in May and June, department store representatives reported a noticeable pickup in early July, attributed at least in part to July's bad weekend weather. Sales of TVs, VCRs, and microwaves are strong in stores aimed at moderate- income customers, while an upscale chain's strongest departments are men s and women's sportswear. Sales of home repair and building supplies remain very strong. There is considerable geographic variation in sales results within the region, but respondents attribute this more to the competitive conditions of specific stores than to differences in the strength of local economies.
Inventories are higher than expected in a number of stores, largely because of failure to attain sales plans. Markdowns, especially for apparel, have been used to keep inventories in check, Aside from promotional reductions, prices are generally steady; several contacts reported, however, that intensified competitive pressures have increased promotional activity and eroded margins for the industry as a whole.
Disappointment with sales gains in recent months has not yet caused retailers' plans for the second half of the year to be revised downward. Merchants remain confident that consumers will continue to be a buoyant force in the economy.
Manufacturing
Manufacturing respondents in the First District report that business
is "flat" or "mixed", continuing a pattern that has persisted for
several months. Recreational equipment, aerospace and housing-
related products are said to be doing well. Some respondents report
strong demand from the auto industry, but others have seen a slowing
in what has been, until now, a very strong market. Demand for
industrial components remains week. The electronics industry, which
had seen signs of a pickup a few months ago, has experienced a
leveling off. Two major First District computer firms recently
announced layoffs.
None of the manufacturers contacted has seen an increase in exports attributable to the decline in the value of the dollar, although one representative of the metalworking industry thinks import pressure may be starting to ease. Respondents are continuing with current capital spending plans; plans for 1987 will probably be similar to 1986. None of the firms contacted has seen any significant increases in prices from suppliers; several noted that they cannot raise their own prices. Manufacturing respondents are very noncommittal about future prospects; if pressed, they expect a continuation of current conditions. A couple hope to improve profits through cost saving measures, most notably through consolidations and the sale of excess capacity.
Real Estate
Reports of sales activity in the New England housing market are
mixed. While areas close to Boston are experiencing a seasonal
slowdown (brokers are optimistic that the vacation season is
responsible for the reduced number of buyers), other parts of the
region are enjoying a booming pace similar to that in the spring.
Listings are said to be plentiful, and the attractive properties are
still turning over at a very rapid rate. Price experience is varied:
prices are stabilizing in some areas, but continuing to climb in
others. In general sellers are getting close to their asking prices.
Condominiums, from the very affordable to the luxurious, are selling
well.
Vacancy rates for office space are up slightly in some parts of the region as new buildings have recently come on line. Rental incentives are being offered, but agents are confident that there will be little problem filling the new space.