October 23, 1991
First District economic activity continued subdued in September and early October. Most retailers contacted report that sales remain weak, although a few experienced a pickup in recent weeks. Retail respondents do not expect sales to improve or deteriorate further in the remainder of the year. Among First District manufacturing contacts, a majority express concern that business conditions are showing no clear uptrend. While half of the respondents experienced a slight improvement in demand during the summer, several sense renewed softness more recently, and most expect no significant growth until 1992.
Retail
September sales were flat to down from September 1990 for most of
the First District merchants contacted in mid-October. A few,
however, have seen sales increases - one as high as 10 percent - in
recent weeks. Sales improvements have been concentrated among
heavily promoted items, as consumers become increasingly price- and
value-conscious. Despite slow sales, inventories are generally low.
Retailers report very modest (or zero) increases in their prices in recent months, partly because of heavy promotional activity and partly because vendors are not raising prices. Respondents are maintaining margins and profits by cutting costs. Several contacts indicate that employee hours have been cut, but none plan layoffs, and seasonal hiring is scheduled as usual.
Contacts say they are approaching the Christmas season cautiously. Those with stores concentrated in New England are less optimistic than nationwide chains. Some believe that the "worst is behind us," but most look forward to little change in their sales results for the remainder of the year.
Auto Sales
Reports on automobile males are mixed. Dealers note that foreign car
sales have been performing relatively well, while domestic car sales
have only inched up since last month. Sales of less expensive and
used cars are generally stronger than those of new cars. Tight
credit is said to be a major factor behind the weak performance.
However, dealers hope that the worst is over, partly because the
average age of cars is rising.
Manufacturing
At a majority of the First District manufacturers contacted, sales
are either flat or up very slightly compared with year-ago levels,
but incoming orders are flat to down. As a result, backlogs are
declining at some firms. Although half of these companies report
that August or the third quarter showed some improvement over the
previous period, several express disappointment about recent
inquiries and concern about renewed softness. Much of the summer
pickup was attributed to improved demand from the commercial
aircraft, auto, and health care industries. By contrast, defense,
commercial real estate, and less specialized industrial products
were seen as remaining relatively weak. Moreover, the decline in
August and September auto sales has reportedly raised doubts that
sales to the auto industry will continue at the summer's pace. As
for foreign markets, the Units Kingdom is described as surprisingly
weak, and Europe and Japan are characterized as better but slowing.
Several contacts, but especially those serving the auto industry, report that they are facing pressure to cut prices. Respondents have frequently been able to force their own suppliers to reduce prices as well. However, cost-cutting programs or productivity increases have permitted some firms to maintain or improve profit margins despite these competitive pressures. All of these contacts are watching inventories closely and deem their current levels satisfactory.
Most First District manufacturing contacts continue to reduce their employment levels, either through attrition or through ongoing layoffs. In several cases, projected job cuts are substantial. Capital spending remains largely on budget. One firm has cut expenditures well below plan, but another has revised a previously reduced target upward. In 1992, capital spending is expected to remain close to current levels.
First District manufacturing contacts generally expect the recovery to be very slow, with little visible improvement before early to mid-1992. A majority see no clear uptrend or are concerned about "backsliding" in the third or fourth quarter.