December 6, 1989
Economic activity is generally flat and below the expectations of retail, manufacturing, and real estate contacts in the First District. While inventories have edged up at some firms, other cost pressures have eased. The New Year is expected to yield more of the same. A recently released forecast of economic activity in the District predicts employment declining in 1990 and then picking up in 1991-92.
First District retailers report that sales from October through mid- November are about even with year-ago levels and well below their earlier plans. Although unseasonably warm weather has contributed to weakness in winter apparel, a variety of respondents see soft demand. Retailers have stepped up promotions, but consumers are proving unresponsive. Because inventories have edged up, retail contacts are reducing orders and delaying deliveries of new merchandise.
Cost pressures on regional retailers have abated. Respondents report increased availability and generally flat to slightly lower prices for goods, labor, and capital. As exceptions, medical insurance costs continue to escalate, and credit for small firms and riskier projects is more difficult to obtain.
Most retailers contacted expect promotions to continue into 1990. However, several respondents foresee a revival of consumer buying and a normal, if not stellar, Christmas season. While firms are decidedly cautious and are not making new capital commitments, they are holding to existing schedules of store refurbishment and expansion.
Manufacturing
Almost all First District manufacturing contacts report that
shipments and orders are flat or down from year-ago levels. The
declines range from slight to 15 percent. Although two firms mention
a recent pick up in orders, others describe demand as weakening and
below plan. Orders from the auto and computer industries are said to
be off most sharply. Products related to the aircraft,
telecommunications and medical equipment industries and most exports
remain relatively strong. One-third of manufacturing contacts say
their inventories are higher than desired.
Employment is below 1988 levels at two-thirds of the manufacturers contacted. Some are cutting management layers, another is not hiring seasonal help. One "cautious firm," which is giving overtime, has instituted a hiring freeze. Labor markets are described as "favorable" in Vermont and "loosening but still tight" for professionals in Massachusetts and for low-skilled workers in Connecticut.
Capital expenditures are expected to remain at 1988-89 levels or to decline in 1990. Next year's spending will be directed toward maintenance and productivity improvements.
First District contacts indicate that input prices are generally stable or down slightly from recent peaks in what is now a "buyers' market." Manufacturers' sales prices are mixed. Half the respondents report that sales prices are flat or down, with some discounting occurring in the United States and the United Kingdom. Others have raised prices 3 to 5 percent from year-ago levels. Two firms hope for similar increases early next year. Among firms discussing profit margins, most report improvements.
First District manufacturers foresee little or no sales growth in 1990. Although no contact expects a recession, several expect that 1990 will prove to be a "difficult" year.
Real Estate
First District realtors report that residential real estate sales
are slightly lower than or even with last year's level. Contacts say
that they are working harder to attain comparable results, with
homes staying on the market longer and prices declining. The most
prevalent reason cited for the slowdown is buyer caution based on
general uneasiness about the economy. Most of the realtors contacted
expect level residential sales in the New Year. According to the
Spaulding and Slye Quarterly Review, the commercial real estate
market is also softer, with landlords in Greater Boston adopting
aggressive strategies to retain tenants.
Outlook
The New England Economic Project (NEEP), a nonprofit organization of
businesses, government agencies and educational institutions, held
its semi-annual outlook conference in mid-November. The NEEP
forecasts call for nonagricultural employment in the region to
continue declining in 1990 as it has since early this year. Regional
employment will recover in 1991 and grow more strongly in 1992,
equaling the projected national growth rate of 1.5 percent in the
latter year. The region's unemployment rate will remain below the
U.S. average over the forecast period.