November 2, 1994
Business continues to improve in the First District, with the exception of the housing sector. Most retailers and manufacturers report improving results in the late summer and early fall, with corroborating indications from temporary services firms. Insurance companies report small sales increases in the third quarter.
Retail
First District retail sales have picked up considerably since the
summer, particularly in hard goods. Chains selling home furniture,
home audio, and business equipment report increases in sales of 20
to 30 percent over year-earlier levels. Other retail contacts cite
gains ranging from 2 to 8 percent. One exception to the generally
strong results, a department store, attributes sluggish sales to
warm fall weather, which deterred shoppers from purchasing winter
apparel.
Some retail contacts have observed modest increases in suppliers prices, particularly plastic, paper, and cotton, which will be passed on to customers in some cases. Gross margins remain fairly stable. Inventory levels are generally satisfactory. Retailers with double- digit sales growth report large profits and increases in employment of 12 to 30 percent.
Retail contacts anticipate a strong holiday season with growth in sales of 2 to 20 percent. While none plans large pre-holiday markdowns like those offered last year, all agree that their customers continue to be frugal and discriminating shoppers.
Temporary Employment Services
Temporary employment firms report that their business is strong and
growing. Contacts sense a definite shift toward temporary workers on
the part of many firms, especially larger ones; companies that have
recently downsized are turning to contract labor as business picks
up. Temporary assignments are reportedly increasing in length and
tend to be more project-oriented than in the past. Personnel
services firms expect strong demand for temporary staff to persist
as the economy continues its modest growth.
Manufacturing
First District manufacturing contacts report continued growth in
revenues from a wide range of products. Sales of automotive-related
items, industrial machinery, personal computer and networking
products, furniture, and biotech instruments, in particular, are
said to show double-digit rates of increase from a year ago. One
contact producing residential construction products reports a recent
slowdown in orders, but notes they remain above year-earlier levels.
By contrast, demand for aircraft parts and medical equipment has
dropped at double-digit rates, and sales of minicomputer and
mainframe products remain sluggish. Most exporters are still finding
Western European markets to be slow, while seeing good growth in the
Pacific rim.
Contacts generally report that they are operating in a stable pricing environment, although a few are able to raise prices, and medical equipment and most computer prices remain on a downtrend. About one-half report unchanged materials costs, in some cases because they have successfully fended off increases by suppliers. The other half report overall increases, typically in the range of 1 to 3 percent. With respect to labor, most reported pay raises are about 3 to 4 percent.
Two-thirds of the manufacturers contacted expect business trends in coming months to be similar to recent performance. The remaining respondents are split as to whether their company will be challenged by a slowdown in the rate of economic growth, or benefited by new products or more favorable export condition.
Residential Real Estate and Construction
After a good spring in many parts of New England, the real estate
market shows some signs of slowing down. Contacts in Rhode Island
and Massachusetts report a decrease in sales activity in the summer
and early fall compared to last year, which they attribute in part
to the increase in interest rates. Connecticut activity has held
steady at earlier levels, with prices at or near trough. New
Hampshire is an exception, with sales growth reportedly accelerating
each quarter this year.
Nonbank Financial Services
Almost all respondents at insurance companies report a small
increase in sales in the third quarter of 1994 compared to the third
quarter of 1993, with most of the increase in annuities. While
employment is currently stable, two of the responding insurance
companies plan significant downsizing in the first half of 1995.
The Outlook
The New England Economic Project (NEEP), a nonprofit forecasting
group, released its semi-annual regional forecast in late October.
NEEP projects a slight slowdown in the rate of total employment
growth in New England, from 2 percent in 1994 to 1.5 percent in
1995. Services and retail trade are expected to continue to account
for most of the region's job gains.