May 10, 1995
The pace of the expansion continues to moderate in the First District. Most retail contacts report disappointing sales results. Manufacturing activity has slowed since the fourth quarter, but year-over-year gains reportedly continue at a satisfactory pace.
Retail
First District retailers report mixed results in March and April.
Sales activity ranged from an increase of 12 percent to a decline of
10 percent compared with year-earlier levels. Most contacts express
some disappointment, in part because April sales were generally
softer than those of March, despite a late Easter. Retail
respondents' expectations for the next six months also range widely,
with some anticipating sales declines and others single-digit
growth.
Contacts note that vendor prices have inched up 1 to 3 percent over the last year, with steeper increases in the prices of rubber, cotton, leather, and especially paper. Gross margins and profits for 1994 were up slightly from the previous year. Most contacts plan zero or very small increases in capital spending and employment this year.
Tourist industry contacts report a large increase in the number of visitors to New England in March and April, particularly to the Boston and Cape Cod area. The rise is attributed to more international travelers, Americans' current preference for family- oriented short trips, and the 375th anniversary of the Pilgrims' landing. Despite the increased numbers, tourist officials observe that domestic visitors are spending less in souvenir shops and restaurants.
Manufacturing
First District manufacturing contacts report a good first quarter.
In most cases, sales and orders were well above year-ago levels,
with gains ranging from 3 to 18 percent. Nevertheless, two-thirds of
the respondents note a modest slowdown from the fourth quarter pace.
Demand for construction-related products weakened most broadly, with
residential orders softer than commercial. However, reports on
automotive products were mixed, with some manufacturers pleasantly
surprised by how well auto-related orders have held up. Demand for
office machinery and other capital equipment generally remains
strong. Aerospace orders are also showing signs of life. Several
contacts mentioned that dollar weakness is boosting sales.
Manufacturers described double-digit price increases for a wide variety of commodities, including rubber and petroleum-based products, paper, wood pulp and packaging materials, cotton, fabrics, and metals. Several also mentioned the impact of the yen's appreciation on the cost of inputs from Japan. Views were mixed on whether commodity price increases are abating. Just over half of the respondents are starting or continuing to raise selling prices on selected products. The others, facing ongoing competitive pressures, are holding the line.
Employment is slightly above year-ago levels at more than half of the manufacturing contacts, and one-third plan selective hiring in the coming months. Still, several First District manufacturers remain in the midst of previously announced consolidations; some of these firms plan ongoing cutbacks but at a slower pace. No one noted any labor shortages or wage pressures. Over half the contacts expect capital spending in 1995 at or above last year's pace, with the focus on cost-cutting equipment and new product development.
Although growth is widely seen to be moderating in response to higher interest rates, most contacts expect their own firms and the U.S. economy to keep expanding at a satisfactory pace. A few are keeping a wary eye on the consumer, but most anticipate a "soft landing," with little pickup in inflation.
Temporary Employment Firms
Steady, solid business characterizes the temporary services industry
in New England. Contacts report that sales and profits are up from
year-ago levels, and they expect that growth to continue. Workers in
biotechnology and health care, in particular, are in strong demand,
especially in the Boston area. Overall, businesses continue to rely
on contingent workers to supplement a trimmed permanent work force,
a phenomenon personnel supply firms sense is here to stay.
Commercial Real Estate
Improvements in the First District commercial real estate market are
spotty, with some markets showing promise, while others show signs
of slowing. The strongest office markets are in the Boston and
Providence suburbs, with much new leasing activity among start-up
companies leading to serious plans for new construction. Contacts in
Portland and Providence say that confidence is rising in their
downtown office markets. By contrast, the Hartford office market
shows little improvement, and new leasing activity in downtown
Boston has slowed as landlords have increased asking rents 10 to 15
percent in the last year.
Nonbank Financial Services
The majority of respondents at life insurance companies report an
increase in sales in the first quarter of 1995 compared to the first
quarter of 1994. The increases were mostly in individual life
insurance and annuities, while sales of health insurance were
reported to be down. Employment at the responding companies was flat
to down in the first quarter, with only one contact reporting a
modest increase.