Beige Book Report: Boston
June 23, 1987
Economic activity in the First District remains at a high level, although the composition of activity may have changed a little. The retail experience has been mixed, with some merchants facing flat sales and others enjoying large increases. Poor weather depressed sales in May; early June results have been stronger. Manufacturing respondents reported a fairly broad-based pickup in orders in the past couple of months. This increase is attributed to domestic demand, rather than an improving trade situation. While retailers are seeing rising import prices, manufacturers are not. Employers throughout the District are experiencing difficulty attracting and holding workers, particularly at the entry level.
Retail
Sales results continue to be mixed in the First District. Some
chains report sales level with last year; others have seen increases
of up to 22 percent in recent months. Several contacts mentioned a
noticeable pickup in the first week or two of June after a
lackluster May. Inventories have been kept in line with sales. Some
prices, notably apparel and lumber, are rising; so are local labor
costs.
The weather in New England was poor in May and sales generally suffered as a result. This was particularly true of seasonal items, which reportedly picked up markedly as the weather warmed at the end of the month. One store experienced a sudden drop in sales of major appliances in the middle of April which has not yet been reversed; another, however, said appliances advanced well while sales of homebuilding supplies declined.
A number of merchants reported difficulty in keeping stores and home offices fully staffed. Turnover is rising ("because it is so easy for employees to find new jobs") and it is difficult to hire new employees, especially at the lower-paid end of the market.
Forecasts for the remainder of the year are closely tied to recent performance. For stores performing poorly, this represents a more negative outlook compared with earlier this year.
Apparel Prices
Because of the sizable apparel price increase in the CPI, inquiries
about the sources of this increase were made among First District
retailers. These retailers report that apparel import prices are
rising substantially (10-25 percent compared to a year earlier);
they lay the blame for these increases on both the quota system and
the decline in the value of the dollar. Prices of domestically
produced apparel are increasing more gradually; these domestic price
increases are attributed to rising textile prices.
Strong demand for apparel is leading to increases in the prices at which quotas are bought and sold among overseas manufacturers. Also, because the quotas limit the quantity (not value) of goods that foreign producers can send to the United States, the items now imported include fewer inexpensive goods. While the decline in the value of the dollar has had its strongest effects on the prices of imports from Japan and Europe, quotas also affect goods from countries with no currency appreciation relative to the dollar. In addition, the appreciation of the yen has contributed to price increases for Korean and Taiwanese apparel, because many producers in these countries buy their fabrics from Japan.
Both imported and domestic textile prices are rising. Prices for imported textiles are rising because of the decline in the value of the dollar (Japan and Europe) and because of quotas (Hong Kong, Korea, Taiwan). Domestic prices are rising because demand is up and domestic textile mills are running near capacity.
Manufacturing
Respondents from the manufacturing sector have seen an increase in
orders in the past month or two. Most of these contacts are
producers of capital goods, but within this group the increases have
been broadly based. Manufacturers of both high technology products
and more traditional capital goods have experienced increases.
Domestic demand is responsible for the improvement. Reports on
exports were mixed. One contact in the instruments industry reported
that exports to Europe have been strong since 1986; however, another
contact, from a firm that is very active in international markets,
described exports as disappointing. None of the residents attributed
the pickup in domestic orders to an easing in import competition.
Japanese competitors are said to be resisting raising prices and are
holding on to market share tenaciously. Most respondents are also
holding the line on prices and in a couple of cases prices are being
reduced.
Because of the lag between orders and shipments, several contacts have quite low shipment volumes. A couple have had small layoffs recently. Hiring is limited to replacement hiring; none of the firms contacted is increasing the size of its workforce. Capital spending levels are considered to be fairly high, although not necessarily higher than last year. On balance, manufacturing respondents have become a little more positive about the outlook for the next six months to a year.
Outlook
The New England Economic Project (NEEP), a non-profit organization
comprising businesses, government agencies and educational
institutions, held its semi-annual outlook conference at the end of
May. The NEEP forecasts for the six New England states, taken
together, call for nonagricultural employment in the region to
increase at a slightly faster rate in 1987 and 1988 than the 2.6
percent rate of growth experienced in 1986. Growth will be more
balanced, with manufacturing employment stabilizing in 1987 and
increasing slightly in 1988. Non-manufacturing employment will grow
strongly but not quite so strongly as in the past couple of years.
The unemployment rate in the region will remain around 4 percent.
Representatives from all six states spoke of the difficulties
employers are having finding workers. All kinds of businesses,
manufacturing and services, are experiencing difficulty attracting
and holding on to staff, especially at the entry level.