January 22, 1992
Economic activity continues at a low level in the First District. For most retailers, Christmas sales were even with last year's. Manufacturing demand remains weak, with sales and orders below year- ago levels at most firms contacted. Manufacturers' employment continues to decline, and capital spending plans are restrained. Few firms expect any improvement before mid-year.
Retail
Nominal dollar sales were level with Christmas 1990 for the majority
of First District retailers contacted in early January. The few
merchants who reported significant increases over last year are
upscale or specialty stores. For virtually all retailers, consumer
activity was particularly restrained in the first half of the
Christmas season, but a later-than-usual "last minute rush"
prevented major sales declines.
Although some retailers offered large discounts early in the season, prices have now stabilized. A few merchants with especially strong market positions passed some cost increases on to consumers. Most continue to maintain strict control over inventory. In general, both margins and profits are flat.
All contacts undertook routine seasonal hiring, but plan no changes in permanent employment. Wage increases are minimal. With few exceptions, capital spending plans are severely limited. Preserving liquidity reportedly has priority over large investment commitments since consumer spending remains erratic and competition intense. Few foresee a substantial improvement in their business in the new year.
Manufacturing
First District manufacturing conditions remain sluggish. A majority
of respondents indicate that late 1991 shipments were down from
year-earlier levels, with reported declines ranging from 4 to 20
percent. Several contacts experienced renewed weakness in the fourth
quarter, with new orders and backlogs below late 1990 levels. Only a
small minority saw modest year-over-year gains, still, despite
generally weak demand, most contacts pointed to at least one product
line with rising sales and orders. Some electronics and
telecommunications products were relatively strong, as were sales by
some companies to the health care sector, brokerage firms, and
customers in aerospace, plastics, and environmental protection.
Although the auto industry is expected to be weak over the medium
term, two contacts reported increased sales to U.S. auto firms and
to Japanese transplants. The European and Canadian economies were
generally said to be as weak as or weaker than the U.S. economy, but
a few firms reported a rise in foreign sales.
Manufacturers' sales prices are generally flat to down. Most contacts are offering discounts on their weakest lines or across the board. In turn, respondents are seeking price concessions from their own suppliers. Still, several report pinched margins, only partially relieved by productivity gains. To contain costs, two-thirds of the respondents have reduced employment from year-ago levels, either through layoffs or attrition. Almost half are planning or considering further cuts. No firm expects to expand its work force any time soon.
One-third of the respondents plan to increase capital spending in 1992 by as much as 10 percent. For the rest, investment will be equal to or less than year-ago efforts. In explaining their restrained investment plans, almost half point out that they have adequate or excess capacity. Others mention concerns about cash flow or onerous debt levels. While lower interest rates reduce the cost of carrying this debt, no contact indicates that interest rate cuts will lead his firm to make additional investments in the near term. A few contacts hope that such cuts will prompt their customers to do so, however.
A majority of manufacturing contacts expect no improvement in economic activity before the second half of 1992. A few hope for a pickup in the third quarter in response to lower interest rates; others express faith in election-year fiscal initiatives. Even so, most expect very slow growth over the medium term.
Residential Real Estate
Reports on First District home sales vary. Some realtors report that
sales have picked up to relatively healthy levels; others say sales
remain weak. Even where home sales are low, no additional weakening
has occurred in recent months. Moreover, realtors contacted think
home prices have bottomed out or are close to doing so.
Outlook
The nonprofit New England Economic Project (NEEP) released its semi-
annual forecast in early December. Based on a forecast that the
national economy would "continue to creep sluggishly out of
recession," the NEEP forecasts call for a delayed recovery in New
England, with total nonfarm jobs showing no growth until the third
quarter of 1992. Manufacturing employment losses will continue until
the end of 1992 for the region as a whole, while nonmanufacturing
shows some growth as early as the second quarter, notably in
wholesale and retail trade.