August 4, 1993
Economic activity in the First District continues to expand slowly, and inflation remains low. Retail contacts indicate that consumers are spending cautiously. Manufacturers report sluggish growth overall, but strength in automotive sales. The New England housing market has improved only modestly since last year.
Retail
Retail sales performance among First District contacts varies from
flat to sizable increases over year-ago levels. Because consumers
seem hesitant to spend, those retailers with sales gains believe
their positive results come at the expense of their rivals.
Prices remain generally stable. Drought in the South and floods in the Midwest have not yet affected the cost of food or construction- related items. No increases in inventory stocks are planned, except for two contacts who are altering their mix of goods to offer higher-margin products.
Capital spending plans have increased, as several retailers seek to expand the number of locations in addition to renovating existing stores. Except for hiring to staff new locations, employment levels are unchanged. Wage increases, when they occur, are modest. Because recent sales gains have been unsteady, retailers generally are reluctant to express optimism about future trends.
Manufacturing
Most manufacturing contacts report that their recent sales increased
between zero and 3 percent from year-earlier levels. Some companies
are benefiting from strong demand from the automotive and
biotechnology industries. Sales of a variety of consumer products
are growing, but slowly. Demand for aircraft parts and general
industrial machinery remains sluggish.
Manufacturers report that the U.S. and U.K. economies are in a slow growth mode, but that other European markets are still in recession and the recent fiscal stimulus in Japan is having only limited effects. Some contacts report strongly rising demand from developing countries in Asia or Latin America.
First District manufacturers have experienced little inflation. Small cost increases are reported for some specialty chemicals and metal products, but plastics prices have fallen. One contact anticipates a 3 percent increase in the cost of paper. Consumer goods manufacturers have increased selling prices by up to a few percentage points, but industrial goods manufacturers have not raised prices at all. Auto companies in particular are pressuring their suppliers in the First District to freeze or reduce prices, often requiring then to offset higher materials costs by productivity gains. Computer prices continue to trend downward.
Most manufacturing contacts report that employment is flat or down several percentage points from a year earlier. However, two relatively small companies have increased their head count by double-digit rates. Manufacturers generally expect a continuation of recent economic trends; therefore, they indicate that employment will remain approximately steady in coming months. Some companies will continue to allow employment levels to drift downward. Others anticipate meeting bulges in demand through temporary help and greater overtime. Employers with prospects for steady growth are considering only selective hiring. A majority of manufacturing contacts indicate that they intend to invest in labor-saving machinery and equipment.
Residential Real Estate
The market for residential real estate in the First District changed little during the last quarter. Contacts point to slight year-to- date sales increases in Maine and New Hampshire as a positive sign, given the strong increases in sales from 1991 to 1992. The real estate recovery in Connecticut and Rhode Island continues to lag behind the rest of the region, although prices are no longer reported to be falling. Despite data showing decreased sales in April and May, increased transactions in the higher-priced trade-up market suggest that the housing market in Massachusetts may be stronger than in the rest of the region. All contacts point to low interest rates and prices as having brought additional buyers into the housing market; many expressed concern about the effects of a rise in interest rates, should one occur.Nonbank Financial Services
Insurance companies report strong sales of annuities, mutual funds,
and life insurance in the second quarter. Several respondents are
experiencing a slowdown in health insurance sales, which they
attribute to customers' uncertainty over the shape of the coming
health care reform. For some contacts, low credit ratings hamper
pension sales. Approximately half of the respondents have kept their
employment steady, while the rest reduced employment in the second
quarter.