September 23, 1992
Economic activity remains sluggish in the First District as both retailers and manufacturers await recovery. Most retailers contacted in mid-September experienced a mid-year lull after sales rose in the first quarter. Auto sales show no improvement, but housing activity has increased. Most manufacturing respondents report that sales and orders are equal to or slightly above 1991 levels, but a significant minority add that incoming business has weakened in recent weeks.
Retail
Two-thirds of First District retail contacts experienced sales
declines in the summer from year-earlier levels. They attribute
these declines to consumer uncertainty stemming from the regional
employment situation and the upcoming election. Of those with sales
increases, half believe that the economy is recovering; the other
half attribute the sales improvement to discounting activity.
The cost of goods to retailers and prices offered consumers remain unchanged with one exception. Lumber prices are said to have risen significantly in response to heightened demand from areas hit by Hurricane Andrew.
Retailers still exercise tight control over inventories, although some indicated greater willingness to allow stocks to expand as declines in interest rates have lessened carrying costs. One-third of those contacted plan major increases in capital spending, while others report no change. Similarly, only one-third plan to expand employment; others will continue to reduce it by attrition. Retailers do not foresee any near-term change in prevailing conditions.
Representatives of the Boston-area tourism industry report that visitor totals and the foreign share were above last summer's levels. Although hotel occupancy rates are up, room charges have not changed for over two years. Contacts attribute Boston's increased traffic to exceptionally cool weather and the Tall Ships; thus, these gains may have come at the expense of the region' s resort areas.
Automobile Sales
Auto dealerships report erratic but generally sluggish sales during
the third quarter. Lacking confidence about the economy, consumers
are reportedly stressing value: they are holding on to their current
cars longer, responding to manufacturers' incentives when they do
buy, and opting for used over new cars. The used car market is
strong, and sellable used cars are said to be in short supply.
Dealers are uncertain about the upcoming months.
Residential Real Estate
Residential real estate sales have been fairly strong over the past
few months compared to a year ago. First-time home buyers account
for the bulk of activity. Realtors attribute the increased sales
volume to lower interest rates along with a perception among
potential buyers that housing prices will not decline further. The
condominium market continues to be weak. Realtors expect September
and October to be busy, following the typical seasonal pattern.
Manufacturing
Most First District manufacturers contacted in the week after Labor
Day report that sales and orders are even with or modestly above
year-ago levels. However, one-third of the contacts experienced
renewed weakness during July and August. Products for housing,
health care, telecommunications and, until recently, the auto
industry were described as relatively strong. Office machinery and
computer-related services also showed some small improvement, with
interest in new products offsetting slow economic growth. By
contrast, orders for aircraft-related products are down
significantly from year-ago levels, as some aircraft makers and
airlines postpone deliveries. Government demand and several foreign
markets are also said to be weakening.
Since few manufacturers can count on significant sales growth, they report continuing efforts to cut costs and improve profits. Accordingly, they are keeping inventories tight and capital spending modest. In most cases, capital spending is equal to or below 1991 levels, and two contacts have delayed capital projects. Employment levels are generally flat to down from the beginning of the year, with declines ranging up to 10 percent. Almost half of the firms expect employment to continue to fall.
Input prices are generally stable; despite ongoing efforts, manufacturers are finding it increasingly difficult to wring price concessions from suppliers. The manufacturers' sales prices are flat to down, with low-end products priced aggressively and high-end products more stable. A minority have succeeded in raising selected prices.
While one manufacturer is more upbeat than at any time in the past two years, several describe themselves as more pessimistic than they were in early 1992. Most contacts expect little change from current near-stagnant conditions. They attribute the "anemic" pace of GDP growth to business reluctance to spend ahead of the recovery.