March 15, 1988
Economic reports were quite mixed in the First District in February. Retail results were mostly disappointing while manufacturers generally reported improvement. Manufacturers' shipments ran 2 to 10 percent ahead of last year and new orders ranged from flat to 20 percent higher than a year earlier. Most of the retailers and manufacturers contacted have satisfactory inventory levels, but a few are overstocked. The outlook is generally upbeat, as evidenced by plans to increase capital spending or continue opening new stores. A recent pickup in the region's residential real estate market makes realtors optimistic as well.
Retail
Sales at most of the First District retailers sampled were slack in
February, although one contact, a mass-market discount chain,
reported brisk activity. The weakness was most noticeable in soft
goods; sales of hard goods reportedly dropped off only in the last
two weeks of February Despite lackluster activity, only one
respondent expressed discomfort with "over-stocked" inventory
levels.
In the area of pricing, respondents reported no change in their own markup or promotional policies. At the wholesale level, however, prices are reported to be rising on imported hard goods while remaining flat or falling in the weaker market for soft goods. In response to exchange rate shifts, upscale merchants have been unable to find acceptable substitutes for Japanese electronics or European housewares; low-end discounters, or the other hand, are turning to alternate foreign sources or domestic manufacturers.
The retail outlook is mixed, but hardly pessimistic. Most of the retailers surveyed had non-economic explanations for the current softness, citing bad weather, management failures, and the lack of an accepted fashion trend. Thus a majority expect sales to rise— some moderately and some rather smartly.
Respondents are proceeding cautiously with their investment programs. Some of this investment is aimed at increasing efficiency rather than expanding capacity. But most chains are adding new outlets, albeit at a slower pace than in recent years.
Manufacturing
First District manufacturers' reports on new orders range from flat
to "startlingly" strong compared with their year-ago levels. The
best reports come from respondents in paper products, fabricated
metals and transportation where new orders are up 8 to 20 percent
from early 1987. Demand emanating from the electronics and auto
industries is described as improving, but reports on government
orders vary. Only a few respondents said exports or the weak dollar
contributed to their gains. Current shipments are running 2 to 10
percent above year-ago levels.
Materials prices are rising modestly (2 to 3 percent) except for paper and metals. With availability a concern, paper prices are up 10 percent and are expected to go on rising. Nickel prices have doubled recently. High copper and aluminum prices, in contrast, are now thought to be headed down. Manufacturers' own prices are generally stable, but there are exceptions. For example, a tool maker recently raised prices 10 to 15 percent and manufacturers of paper products have passed most cost increases on to their customers.
Inventories are generally termed satisfactory, but a third of the respondents find them higher than they would like. Employment levels are stable, although a minority would hire a few production workers if they were not facing tight labor markets and "incredible" turnover rates in New Hampshire and the Greater Boston area. One firm, however, expects a layoff later this year.
As for capital spending, most respondents plan increases of 10 to 25 percent from 1987 levels while a minority expect little change or declines. Contacts in paper, fabricated metals and transportation are expanding capacity slightly, but most spending programs are aimed at modernization and efficiency improvements.
In general, First District manufacturers are "cautiously optimistic" about 1988 and expect a "decent" year with slow growth. One third of those contacted recently revised their post-October forecasts upward, and no one expects a recession in 1988.
Residential Real Estate
Residential real estate sales in the First District picked up in
February compared to recent months and now exceed year-earlier
levels. The improvement is especially pronounced in the Boston area,
where realtors report very brisk activity. Less expensive houses and
condominiums are more in demand than expensive homes. Realtors look
forward to a very busy spring.