January 18, 1995
Reports from First District businesses in early January were similar to those in October and November. Manufacturers' gains are widespread, while retailers' results vary considerably. Prices of selected inputs are reportedly rising.
Retail
First District retail sales results were highly varied during the
holiday season. Two "category" chains reported sales increases of 15
to 30 percent compared to year-earlier levels. Department stores and
food chains cited more modest growth of less than 5 percent. And
contacts at off-price discount and specialty apparel chains
experienced declines in December sales of 3 to 6 percent, which they
attributed, in part, to department stores' huge promotions prior to
Christmas. Products that fared best were hard goods such as
electronics, appliances, audio equipment, sporting goods, and
furniture. State tourist agencies report exceptional fall and winter
tourism in New England because of increased business and
international travel.
Retail contacts' expectations for the first half of 1995 also vary widely, ranging from 0 to 20 percent sales growth from a year earlier. Vendor and retail prices remain fairly level, although the number of exceptions is growing, including plastics, resin-based products, paper, and cotton. Most contacts report higher profits in fiscal 1994, and only one mentioned lower gross margins because of holiday promotions. Major capital and employment expansions in 1995 are limited to the top- performing large category chain-stores.
Temporary Employment Firms
Contacts in the temporary services industry report steady growth in
business in the fourth quarter of 1994. The market for clerical
workers has tightened, a development which personnel firms attribute
to increased opportunities for permanent employment; client
companies are encouraging more temporary workers to "go permanent"
and hiring new staff directly. Temporary employment firms sense an
overall upswing in optimism among their business clients and expect
demand for their services to remain strong. Winter activity is
somewhat weather-dependent, as weekday storms can force workers to
cancel assignments.
Manufacturing
First District contacts report that demand for manufactured goods
continues to increase, with variations across products similar to
the recent past. Automotive and computer-related sales show double-
digit increases from a year ago, while electrical and paper products
generally show solid single-digit growth. Appliance sales reportedly
continue to increase, although more slowly than in early 1994.
Demand for textiles and medical and pharmaceutical equipment remains
sluggish.
Manufacturers report significant cost increases for paper and packaging, plastics, steel, polyester fibers, and postage; moderate cost increases for chemicals; unchanged costs for cotton fibers; and declining costs for electronics components. Selling prices mostly are flat or slightly higher than a year ago. Some contacts report that their industrial customers are imposing limits on price increases. In other cases, negotiated agreements with suppliers, a lack of labor cost pressures, or greater operating efficiencies are limiting the need for price hikes.
At most respondent companies, U.S. employment has remained flat or has decreased at a single-digit rate over the past year. Only a couple of smaller firms have expanded their work force to any significant degree.
Most manufacturers expect good results in 1995, although the majority anticipate a slowdown in U.S. GDP growth by the second half of the year. Exports are projected to be a bright spot. Several contacts say that they will try to raise prices before the anticipated slowdown.
Residential Real Estate
Contacts report that recent increases in mortgage rates are starting
to depress the residential real estate market, particularly for
existing homes, but normal winter slow-downs make current trends
hard to identify. Respondents in the three southern New England
states and Maine note that fourth quarter sales of existing homes
were at or below year-ago levels. By contrast, newly constructed
homes in the middle and upper price ranges are selling well,
although more slowly than last fall. Housing prices are stable in
most places. Several contacts express concern that higher interest
rates will further dampen the spring market.
Nonbank Financial Services
Respondents at insurance companies report increases in sales between
2 and 20 percent in the fourth quarter of 1994 compared to a year
earlier. Annuities and variable life insurance continue to be strong
sellers, while whole life products are lagging. A number of
respondents have added distribution channels for their products or
are exploring doing so, particularly distribution through banks.
Employment was flat in the fourth quarter at all but two insurance contacts (who expanded slightly). Half the respondents plan to cut employment in 1995, some significantly; the rest plan either small increases or no change.