August 8, 1990
On balance, second-quarter growth at First District firms was slow and slowing. Retailers and wholesalers reported soft sales and intense price competition. They emphasized recent efforts to prune costs by reducing inventories. A majority of manufacturers continued to achieve year-to-year growth in sales, but the gains were often entirely attributable to exports. At many firms domestic sales were flat to down from year-ago levels, and incoming orders were slowing. Realtors interpreted a recent pickup in residential sales as very largely seasonal. Most businesses expect weak conditions to continue through 1991.
Retail
Retailers and wholesalers in the First District continued to report
soft sales. About half the sample (primarily firms selling clothing,
sporting goods, and drug-store items) achieved modest sales growth.
They usually attributed these gains to increased promotional
activities or to obtaining a larger market share because of weaker
competitors' difficulties. For the remainder, sales were generally
down several percent compared to year-ago levels for clothing and
home items and were sharply lower for some specialty goods. This
group of merchants also stressed that competitive pressures were
leading to lower margins.
Most contacts have attempted to prune costs, especially by reducing inventories. They reported supply prices rising by 0 to 4 percent and modest wage increases. Some other costs, including fringe benefits, are rising more rapidly.
Half the respondents mentioned reduced availability of bank credit as a problem either for their own business or for other area businesses. The remainder indicated that they had had no problems obtaining required inventory financing.
A couple of large retailers are planning for a stronger fall season. The majority did not see any good news on the horizon, however, and expect continued weak sales for the foreseeable future.
Manufacturing
Domestic shipments were flat to down from year-ago levels at just
over half of First District manufacturers contacted. Declines ranged
from 1 to 10 percent. Exports performed considerably better than
domestic sales at most respondents. Accordingly, total sales
including exports were above mid-1989 levels at more than half of
the firms surveyed. Reported gains varied from 3 to 20 percent. New
orders were generally described as flat, down, or slowing. Along
with exports, niche and new products performed reasonably well. By
contrast, domestic demand for office products, construction- and
computer-related items, machine tools, instruments and consumer
goods was relatively weak. Reports on incoming orders from the
aerospace and auto companies were mixed. Manufacturers continue to
watch inventories carefully, but few report any excessive buildups.
Materials prices were generally stable or down slightly from year- ago levels. Selling prices are flat to down at two-thirds of the firms contacted, with two offering discounts of 8 to 20 percent. At the remainder, recent or planned price increases average 2 to 5 percent, but one firm plans a price rise of 9 percent.
Employment remains at mid-1989 levels at over half of the manufacturers contacted. The remainder have reduced employment by as much as 10 to 15 percent through layoffs, attrition and shorter hours. Wages are above year-ago levels by 3 1/2 to 7 percent.
Two-thirds of First District manufacturing contacts are increasing capital spending from 1989 levels, with increases ranging from 7 to 50 percent. For the rest, capital expenditures are as much as 40 percent below 1989 levels. Spending plans focus on equipment, primarily computer systems, expected to improve productivity or needed for new products.
Sixty percent of First District manufacturers describe their outlook as very cautious. They generally foresee "tough" conditions lasting into 1991, but they are counting on exports, new products, or price increases to support their firms over the next 12 months. The remaining respondents are modestly optimistic. They too are looking for exports and new products to buoy sales. Nevertheless, an anticipated pickup in demand from the auto and computer industries is crucial to their expectations. Most contacts express more confidence about the prospects for their own firms than for the economy as a whole.
Residential Real Estate
First District realtors report a recent seasonal upturn. Sales are
said to be roughly the same as this time last year in a market
characterized as soft. Prices are falling, and inventories are
large. Several realtors noted a slight pickup in condominium sales.
Realtors link the industry outlook to the state of the regional
economy and the coverage it receives in the press. They report that
consumer confidence is now low because of uncertainty about interest
rates and slow economic growth.