March 16, 1987
This month's reports from First District retailers and manufacturers were the most positive in some time. Retailers were both pleased and surprised by the strength of February sales. For the most part, auto dealerships were exceptions to the generally favorable sales picture, but within this group too there were reports of surprisingly good sales volumes. Reports from the manufacturing sector still indicate little vitality; nevertheless, there is some evidence of a gradual pickup in orders and respondents seem more optimistic about the future.
Retail inventories have increased, but respondents express no concern about this development. Manufacturing inventories are low by historic standards and respondents intend to keep them this way. No significant price changes have been observed by either retailing or manufacturing respondents.
Retail
Most retailers contacted were very pleasantly surprised in February.
Reports on February sales included such phrases as "astoundingly
good" and "unbelievable;" year-over-year increases ranged from 9 to
30 percent on a comparable stores basis. February is usually a slow
month even with considerable price reductions, but stores did well
with spring merchandise as well as with discounted older items. One
merchant commented that if consumers are really going to pull back
in response to high debt levels, they have postponed it. For the
fiscal year as a whole, which ended in January, results were 6 to 10
percent ahead of 1985. This was above plan for all contacts but one.
Inventories were reported to be somewhat high. Some increases were by design. Others were not, but contacts did not regard these unplanned increases with much concern.
Prices are said to be stable, except for pharmacy items. However, one department store owner reported "reliable rumors" that prices will be up noticeably for fall merchandise because of the decline in the value of the dollar.
First District retailers are expecting a good first half of the year although they do not expect February's surprisingly high rates of increase to be sustained. The representative of a chain concentrated in the more rural areas of the East and Midwest said its stores in the Northeast are doing better than those elsewhere - a pattern he expects to continue.
Motor Vehicle Sales
The high level of automobile sales in December appears to have
dipped into January's and early February's sales volumes for most of
the dealerships surveyed. While the end-of-the-year rush to take
advantage of the sales tax break is seen as a major factor in the
slowdown, some claim that cold weather has also played an important
role. (January and February are typically slower months.) Signs of
improvement are reported, however, by both domestic and foreign
dealerships. A few contacts are experiencing surprisingly good sales
activity, which they attribute to product quality and reputation.
Used cars continue to do well as their sale pattern is less
seasonal. Trucks typically sell well during the winter months; light
trucks are said to be especially popular because of their
affordability.
Manufacturing
The pace of manufacturing activity in the First District seems to
have inched up in the past couple of months, and there is a slightly
more optimistic tone to respondents' reports. Orders are continuing
to increase for such products as appliances and housing products,
some communications and computer equipment, medical equipment, and
plastics. Semiconductors have started to pick up, according to one
contact. While demand in most other areas remains flat, there were
no reports of deteriorating orders or shipments. For high tech
respondents, sales to Europe are said to be quite good; some
progress is also being made in selling in the Far East (from plants
located in the Far East), although one contact reported that
Japanese customers have cut back their orders because of declining
export sales.
Cost containment continues to be a high priority. Inventory-to-sales ratios are generally low by historic standards. One contact commented that large purchases to take advantage of volume discounts are a thing of the past; his firm now bays precisely what it needs. Another observed that his firm's customers are doing the same thing: formerly they bought in lots of 5,000; now they order exactly "2,112" items. In a similar vein, employment levels are stable to slightly down, even for companies experiencing volume growth. One high tech firm noted that, because of automation, his firm must increase volume 15 percent just to maintain its manufacturing work force; the firm is currently growing at a 5 to 10 percent rate. Most respondents expect capital spending in 1987 to be fairly similar to that in 1986. No significant increases in vendor prices were observed. One contact had successfully increased its own prices at year-end, while another reported that its prices have been falling on average.