January 23, 1991
Economic conditions continue on a downtrend in the First District. A majority of manufacturing contacts report dwindling order backlogs and delivery times. While planned capital expenditures generally remain above depreciation, many projects are under review. According to respondents and press announcements, further declines in employment are likely. Manufacturers hope to see signs of improvement in the second half of this year. Retailers typically report declines in Christmas season sales from a year ago, and they anticipate intense competition for market share in 1991. Half express concern about the effect of banking failures on the availability of credit for inventory financing.
Retail
For the Christmas season, the panel of First District retailers
report that sales typically declined by single-digit percentages
from a year ago. However, department store results ranged from flat
to double-digit declines, while other contacts whose business is not
closely tied to Christmas report flat to slightly higher sales.
Sales results were dampened by widespread promotional activity and
consumers' preference for basic, low-priced gift items.
During the last six weeks, one large New England discount chain has filed for reorganization under Chapter 11 of the federal Bankruptcy Code. Another large department store chain has announced plans to close three stores in New England and a fourth in New York state.
Half the retail contacts expressed concern that the recent failure of financial institutions in New England will lead to difficulties in obtaining inventory financing. Additional respondents cite lack of credit as a constraint on expansion.
Retailers are approaching 1991 with great caution, given falling consumer confidence and rising unemployment. They anticipate intense competition for market share and are attempting to control costs by pursuing conservative policies for spring orders and employment.
Manufacturing
A majority of First District manufacturers contacted report that
sales are flat to down compared with year-ago levels, with declines
ranging from 4 to 8 percent. A minority continue to see year-over-
year sales gains. For most respondents, incoming orders are below
late 1989 levels (by 7 to 25 percent), and backlogs and delivery
times are dwindling. For some, the downturn in orders began early in
the fall; for others it began three to four weeks ago. The slowdown
is reportedly widespread, by geography and sector. Demand for unique
or customized products and for telecommunication and (some)
aerospace equipment remains relatively robust. Several respondents
also find that demand is stronger abroad, particularly in Europe,
than in the United States, but economic difficulties continue in
Canada, the United Kingdom, and Australia.
Inventories are at satisfactory levels at almost all manufacturers contacted; only one firm idled plant to reduce stocks. Employment is little changed from year-ago levels at one-half of the respondent firms; elsewhere layoffs have reduced employment by 6 to 11 percent. Roughly one-third of the contacts anticipate further layoffs. Recent press statements also indicate that the Districts computer and defense industries will see additional cutbacks in employment.
More than half of the manufacturers contacted reduced their 1990 capital expenditures below the amounts originally budgeted. Respondents continue to conserve capital, and in 1991 most expect to invest very little beyond essential amounts. By exception, two firms plan to increase capacity for specific products.
Input costs are generally said to be stable. A few firms mentioned increases in paper and health insurance costs, modest oil-related surcharge for transportation services, and the rise in postal rates slated for February. By contrast, prices for metals and computer chips have fallen. Roughly one-third of the respondents recently raised their own sales prices by 7 to 8 percent from year-earlier levels, but one firm had to rescind an increase. Several respondents are granting discounts.
First District manufacturers describe their mood as sober; they expect a "very difficult" first half to be followed by a "difficult" second half. Few anticipate any turnaround before the third quarter. Several respondents serving the construction industry pointed out that construction will not buoy the economy any time soon. By contrast with 1981-82, little pent-up demand for housing exists, and current vacancy rates are high. Moreover, just-in-time inventory systems save space and permit firms to consolidate plants. Nevertheless, respondents believe that lean and careful companies will weather the coming storm.