November 4, 1992
First District business conditions have acquired a slightly more positive tone, according to contacts reached in the third week in October. Half the retail respondents report that sales in September and early October were flat compared with year-ago levels; for the rest, sales rose at a close-to-normal pace. The majority of manufacturing respondents also indicate that sales and orders were even with or slightly above year-ago figures. In most New England states, residential real estate markets have stabilized; prices are flat and volume is rising. Contacts in nonbank financial services report mixed trends, but most have seen increases in assets under management.
Retail
First District retail contacts have seen a slight improvement in
prevailing conditions. Retailers who faced mixed results in past
months noted some recent steadying in sales, while those who
previously reported increases did so again. None attributes this
modest strengthening to improved consumer optimism. All believe
their firms' promotional efforts were especially effective.
With no change in the cost of goods sold, retail contacts continue discounting to attract bargain-conscious consumers. Inventories remain closely monitored, but four respondents plan to expand the number of store locations. Employment is increasing only to staff new locations, while wages are unchanged or rising modestly.
Manufacturing Demand for manufactured goods has been mixed in recent months. the majority of respondents report changes in sales and orders compared to a year earlier ranging from zero to 7 percent. A couple had significantly batter results, while others experienced declining demand. Sales of electronics and some housing-related products increased. Sales of automotive products were highly variable, while those for aircraft and defense goods declined. Markets in Japan and Europe (especially the United Kingdom) were described as weak, although several manufacturers report doing quite well overseas because of gains in market share.
Manufacturing contacts report that their selling prices range from below to very slightly above year-ago levels. Increased input prices for paper, rubber, some chemicals, and imported goods have put pressure on margins for some companies.
About half the respondents have cut U.S. employment in the past year, by up to 16 percent. At the others, employment has been increasing, by as much as 5 percent. Capital spending was most often described as flat, and has been concentrated in cost-reducing or efficiency-improving equipment.
On balance, manufacturers expressed cautious optimism about the economy over the next year. Most project 1993 to be similar to or slightly better than 1992. Respondents indicate concern over weakness in foreign economies and dampened consumer confidence in the United States. Positive factors include a pent-up consumer demand for autos and housing and improved business and household balance sheets.
Residential Real Estate
The residential real estate market in most New England states has
stopped declining, with prices flat since spring, and volume up as
much as 20 to 30 percent over year-ago numbers. A large stock of
properties continues to overhang the market, and transactions are
still concentrated at the low end of the market, although selected
areas are seeing an increase in "trade-up" activity. Connecticut is
the exception, with prices still falling, especially in areas which
are seeing additional layoffs in defense-related industries. Most
contacts attribute the current real estate stagnation to high
unemployment and low consumer confidence, although many realtors
believe that consumer confidence will pick up after the election,
regardless of the outcome.
Nonbank Financial Services
Insurance companies report mixed sales trends, but firms seeing
increases slightly outnumber those with declines. Most respondents
experienced decreasing employment for the year, with the rest
reporting little change. Wage costs have kept up with general
inflation. A majority of respondents saw decreases in their pension
business, which they attribute to employer sensitivity to continuing
weakness in the insurers' commercial real estate portfolios. Sales
of personal life insurance and retail investment products, such as
annuities and mutual funds, rose. Investment management companies
surveyed also report increases in assets under management.
Respondents attribute growth in investment products to consumers'
switching away from bank deposits because of low interest rates.
Outlook
The nonprofit New England Economic Project (NEEP) released its semi-
annual forecast on October 21. According to this forecast, total
nonagricultural employment in the region will stabilize in the first
quarter of 1993 and begin to grow in the second quarter, albeit very
gradually. NEEP predicts that half the net jobs added in the region
in the first year of recovery will be in services; another third of
the job growth is expected to be in trade. Manufacturing employment
is not expected to improve until the third quarter of 1993.