January 19, 1994
First District businesses continue to report small gains.. Although recent results are mixed in all categories, retailers are generally less pleased than manufacturers or residential real estate professionals. Nonetheless, all three groups are moderately optimistic about 1994. Insurance companies are less upbeat.
Retail
Although First District retail contacts were cautious in their
holiday sales forecasts, most express some disappointment at sales
increases of 1 to 4 percent from the year-earlier period. Two
exceptions, large firms catering to specific markets, enjoyed
double-digit growth in December sales.
Retail contacts noted some unusual holiday shopping patterns this year. Durables were a big seller, particularly electric appliances, whereas apparel, especially women's clothing, did poorly. Sales fluctuated from one day to the next without obvious explanations. Early promotions generated a busier-than-usual week after Thanksgiving, but continued promotions failed to produce a hoped-for surge the week before Christmas. Retailers observed fewer impulse purchases by shoppers.
Despite the ups and downs of December sales, retailers say they are optimistic about 1994, sensing increased consumer confidence. Department and specialty stores anticipate modest sales growth of 1 to 5 percent; the merchants with strong December results expect sales to grow by as much as 10 percent. All contacts plan to open new stores in 1994 and to raise employment levels accordingly.
Manufacturing
First District manufacturing contacts report solid sales increases
from a year ago in the domestic automotive, consumer electronics,
and construction markets. Demand for other products is more mixed. A
supplier to the furniture industry has experienced a sharp
turnaround from last year's slow sales pace, but a furniture
manufacturer reports a small decline. Medical suppliers indicate
slightly higher revenues than a year ago from small equipment and
spare parts, but declines of 20 to 30 percent for major equipment.
Contacts in the aircraft industry indicate higher demand from some
foreign markets, particularly developing countries. However, more
generally, the commercial airline industry is reported to be weak,
and defense orders are up only a little at best. Demand for some new
computers is increasing rapidly, while traditional lines are in
decline. Sales volumes are reportedly rising for higher-end paper
products, but competition is limiting revenues from commodity
papers. A contact in the machine tool industry indicates that sales
remain flat. European demand continues to slip for a wide variety of
manufactures.
Contacts see little evidence of inflation, as selling prices are being limited by competition, greater operating efficiencies, and lack of cost pressures. Only one-quarter of the respondents report any increases in materials costs. These generally lie in the range of 3 to 4 percent, and are attributable largely to specialized electronics products and, more recently, textiles. Lumber prices have nearly stabilized after large jumps.
About four-fifths of the manufacturers contacted have reduced employment during the past year. Most of these businesses now plan to stabilize their head counts, although further declines are expected at some manufacturers of aircraft parts. The other one- fifth have increased their employment during the past year by 7 percent or more, and plan to expand their capacity in the coming year.
First District manufacturers generally express optimism about the coming year. They are heartened by higher incoming orders, the reported strength in the U.S. economy (especially in consumer durables), and improved business profitability. Exporters expect a small pickup in European markets. Several contacts express hope that interest rates will remain stable in order to sustain economic recovery.
Residential Real Estate
The New England residential real estate market continued showing
signs of strength in the third and fourth quarters. Construction of
new homes is up considerably from the previous year; builders in
some parts of Massachusetts are pushing the construction season as
far as weather permits. Contacts also report sizable gains in
existing home sales. One respondent says the Connecticut residential
market is beginning to stabilize after several years of decline.
Another contact notes that the recent uptick in long-term interest
rates may spur transactions in the spring because some potential
buyers and sellers have been waiting for interest rates to bottom out.
Nonbank Financial Services
Insurance companies report a downward trend in employment. Most
respondents reduced employment in 1993 or plan to do so in 1994.
Contacts report that new sales of group health insurance are slow
because of uncertainty over the future of health care reform. Sales
of variable annuities and mutual funds, however, continue to be
strong.