Beige Book Report: Boston
December 4, 1991
Economic activity has not revived in the First District, but results are more varied than in recent months. A majority of retail contacts describe sales as level or rising slightly, but some report continued deterioration. Retailers foresee consumer skittishness and bargain-hunting combining to make the Christmas season very competitive. Manufacturing contacts also report mixed signals. At least half see recurring weakness in new orders and further cuts in employment. Yet, several describe new initiatives and plan increased capital spending. They expect no upturn in economic activity until mid-1992.
Retail
The majority of First District retail contacts report flat to
slightly increasing sales in October and early November as compared
to a year ago. However, one respondent suffered continued declines
in sales, while another entered bankruptcy. Retailers who have
experienced improvements attribute sales strength to consumers long-
delayed purchases of necessities and to an early start of the
Christmas season.
Several retailers note that stimulating consumer demand now requires discounts. The cautious buying pace is attributed to concerns about employment stability as well as to consumers' expectations that anxious retailers will cut prices further. This downward pressure on prices has meant that margins remain thin despite the minor uptick in sales. Thus, profits are unchanged, and retailers complain that they will increase only with further cost reductions.
Most retailers see few remaining opportunities for cost cutting. In all but one case, capital budgets are slim to nonexistent. With few exceptions, wages are not increasing. Most retailers will conduct typical seasonal hiring, although one plans further staff reductions. All expect an extremely competitive Christmas.
Manufacturing
First District manufacturers give mixed reports on sales and orders
in the third quarter, October, and early November. Contacts are
almost evenly divided between those with sales and orders unchanged
from year-ago levels, those with slight increases, and those with
(sometimes sizable) declines. Nevertheless, half the contacts say
that incoming orders have softened recently after improving in the
summer or early fall. Government demand is described as weakening
and construction-related business as dormant. By contrast, retail,
service, biotech and environmental customers are said to be perking
up. Demand from the computer, telecommunication, and aircraft
industries reportedly varies. Views on foreign demand are also
mixed. Some contacts see signs of recent upturns in the United
Kingdom and Canada and continuing strength in Europe and the
Pacific. Others see growing weakness in Europe and Japan and no
improvement elsewhere.
Most contacts report that employment is below year-ago levels; in a few cases it has been stable since summer. Several firms have used part-time schedules, furloughs, salary cuts, and delayed pay increases to reduce labor costs. Over half of those surveyed expect further employment reductions--in two cases in response to unwelcome increases in inventories. Two firms plan modest hiring.
At half of the manufacturing firms surveyed, capital spending is currently below budget, in some cases by as much as 30 to 50 percent. Next year, however, half expect to increase investment from its 1991 level. Some of the plans involve new or replacement facilities and require substantial increases in spending. A few firms are introducing new producing others are trying new marketing efforts.
Input prices are generally described as steady or mixed. Prices for
steel, some types of paper, and standardized products are declining.
Prices for proprietary products and for services, such as
advertising, are up. Sales prices are flat to down at more than half
of the firms surveyed, but a sizable minority have raised prices on
some products by as much as
5 percent.
First District manufacturing contacts have budgeted 1992 sales growth at the current or a slightly improved pace. They expect some pickup in economic activity around mid-year, but, over the medium term, foresee a long, slow haul.