March 13, 1991
Economic activity in the First District shows signs of stabilizing, albeit at a low level. The retailers contacted report mixed sales results - about half experienced increases while others' sales declined, some by as much as double-digit percentages. According to the consensus, sales conditions will be fairly stable for the rest of 1991, forcing retailers to control costs in order to achieve adequate profitability. First District manufacturers generally describe current business conditions as weak, but half report a slight improvement in recent weeks. And most expect a modest recovery toward mid-year, according to press reports, residential real estate activity has picked up in response to lower interest rates and asking prices.
Retail
Retailers in the First District report mixed sales results since
Christmas. For half the sample, sales are up by several percentage
points from a year ago. For the other half, sales have declined - in
some cases, by double-digit percentages. The southern half of New
England is relatively weak; Maine is relatively strong. Our
respondents frequently note that consumers are postponing major
purchases whenever possible, but some also express relief that the
economy has not deteriorated further.
The consensus among our retail contacts is that sales conditions will be largely unchanged during the remainder of 1991. To remain sufficiently profitable, retailers will be forced to keep very tight controls on costs. Some are still continuing to reduce inventories. All are attempting to reduce labor costs through measures such as layoffs, attrition, reduction of hours, or wage freezes. (A couple note that increases in workers' compensation and unemployment insurance make it difficult to hold the line on labor costs.) Retailers' capital spending plans are modest.
Manufacturing
First District manufacturers contacted in late February generally
describe business conditions as very sluggish; half see signs that
demand may be stabilizing. According to this group, incoming
business has improved slightly in recent weeks. Nevertheless, new
orders range widely from 10 percent below to 14 percent above year-
ago levels. Housing, autos and general industry are considered
relatively weak markets; components for commercial aircraft,
telecommunications, and instruments as well as some new products
show more strength. Views on exports are also mixed. Contracts are
divided as to whether exports to Europe are picking up after a weak
third quarter. Exports to the Pacific remain relatively strong.
At half of the manufacturers contacted, inventories are described as somewhat too high. One-third also expect to reduce employment in the next few months. Three-quarters of the firms have already brought employment below 1990 levels, with the declines ranging from slight to as much as 12 percent.
Most contacts report that materials prices are stable or declining. Three have succeeded in negotiating price reductions for selected inputs. Oil-related prices peaked in the fourth quarter. The only price increase mentioned was for specialty steel imported from Japan. A majority of respondents have raised their selling prices on selected products, with the greatest increase amounting to 6 percent. A minority are giving discounts.
Half the manufacturing firms expect capital expenditures to be unchanged from last year's level. A few plan increases of 10 to 20 percent; only one anticipates a decline. Most budgeted spending is for state-of-the-art equipment. Only two firms plan to expand capacity.
Most contacts expect prospects for the economy and for their firms to improve toward mid-year; however, they anticipate a relatively modest recovery. Positive developments cited include declining interest rates, the war's brevity and the need to rebuild Kuwait. Negative factors include "continuing financial fragility" and declines in military spending. Half expressed optimism concerning company sales or profits in 1991. Others express considerable uncertainty: however, they expect the outlook to clarify shortly, since the next four weeks should tell the tale concerning consumer confidence.
Residential Real Estate
According to press reports, residential real estate activity has
picked up significantly since the beginning of the year. In the
greater Boston area, pending sales are up substantially from the
depressed levels of early 1990. Realtors attribute the improvement
to declining interest rates and lower asking prices.