August 7, 1991
First District business conditions are mixed and uncertain. Manufacturers are impatient to see clearer evidence of a national recovery. Their sales and orders are generally flat to down compared with mid-1990, and slightly more than half report recent softness in incoming orders. Retail contacts report that June sales were similar to their levels a year ago. However, two-thirds expect July sales to end above year-earlier figures. First District housing markets continue to improve.
Retail
Retail contacts report that consumer spending generally remains weak
in the First District. For most stores, June sales ranged from 4
percent below to 3 percent above year-ago figures. Relatively strong
products included housewares, home repair items, and electronics. In
early July, year-over-year percentage changes in sales were
generally as good as or better than the June results. With the hot
weather, air conditioner sales were strong. Tourist business was
brisk in coastal areas.
Retailers are keeping inventories very lean, although one contact is stocking up on some electronics items to take advantage of incentives for accepting early delivery. Except for a sharp rise in lumber prices, any wholesale price increases have been very modest.
Contacts report fairly steady employment levels in recent months. One retailer is opening an anchor store in a new mall in August. However, a recently acquired chain will close its New England headquarters, and a third firm notes that a major competitor recently went out of business.
Several retailers observe that economic conditions in New England are no longer worsening. However, retailers universally believe that continuing problems in the banking, real estate, and manufacturing industries, as well as state budget cutbacks, will impede the economic recovery in New England. For those contacts providing estimates, sales expectations for 1991 range between zero and a 5 percent increase over 1990.
Auto Sales
Auto dealers indicate that foreign car sales are healthy and, at a
few dealerships, equal their levels in previous good times. By
contrast, sales of American cars remain weak. As a result, dealers
have kept inventories lean, despite factory incentives offered by
the U.S. auto makers. Foreign auto dealers expect sales to remain
robust; American dealers are less optimistic.
Manufacturing
Half of the First District manufacturers contacted express
disappointment that they are not experiencing a recovery. For a
majority, sales and orders are flat to down compared with year-ago
levels, with declines ranging as high as 15 percent. Slightly over
half of the respondents also indicate that incoming orders have
softened recently. Orders from the semi-conductor and capital goods
industries, retailing, and defense exhibit weakness. By contrast,
two contacts note that orders from the auto industry have
stabilized. Most respondents discussing overseas demand report that
it continues stronger than domestic; however, two firms describe
foreign sales as slowing. For the majority, inventories are at
satisfactory levels. However, one-third of the respondents refer to
problematic increases.
According to most contacts, input prices are stable or falling, but a minority report increases in prices for rubber, chemicals, and packaging materials. Intense competition is forcing most respondents to maintain or reduce their own selling prices. Only a minority had raised prices in 1991 (by 2 to 6 percent).
Employment is below year-ago levels at all but one of the manufacturers surveyed. The declines range from 2 to 10 percent. Respondents also describe furlough and work-sharing programs, extended summer shutdowns, and postponed salary increases. A majority plan further cuts, primarily through attrition or reductions in the workweek.
Over one-half of the manufacturers questioned expect capital spending to continue at last year's pace, but one-third have reduced their capital budgets - by double-digit percentages from 1990 levels. Investment plans focus on maintenance and modernization.
Most First District manufacturers contacted describe themselves as guardedly optimistic or hopeful about their own firms' prospects. However, half see little or no sign that a national recovery has begun. They worry that the upturn may be slower to arrive or weaker than they originally anticipated.
Residential Real Estate
First District realtors report that residential real estate sales
have improved slightly over the past couple of months. Sales are
noticeably better than a year ago, but below the traditional summer
volume. Housing prices continue to fall but have almost hit bottom,
according to most realtors. Lower priced homes are selling better
than higher priced property. Moreover, the condominium and second
home markets show no sign of improvement.