June 21, 1995
Economic activity continues to expand in the First District, although signs of a slowdown are apparent. New England retailers are slightly acre upbeat than six weeks ago. Manufacturing contacts report ongoing year-over-year gains in sales. A few have experienced significant slowdowns in incoming orders in recent weeks; the majority have not. The residential real estate market has slowed.
Retail
First District retail sales have varied considerably in April and
May. Most contacts from discount and specialty chains cite somewhat
encouraging sales gains of 1 to 10 percent during this period
compared to year-earlier levels. A slight upturn in apparel sales is
also welcome news. By contrast, lumber companies and others selling
home building materials report disappointing results, particularly
in May, with sales down 1 to 4 percent from year-ago levels. These
contacts attribute the May slump in activity to high mortgage rates
in this year's first quarter. Retail respondents generally view the
second half of 1995 with uncertainty, anticipating some fits and
starts in consumer spending, and sales growth of 0 to 5 percent.
Contacts cite few increases in vendor prices on merchandise; however, they report significant increases in the prices of retailer supplies, such as paper and plastic. An exception is lumber price., reported to have declined by more than 20 percent in the past two months. Most respondents note an increase in 1995 profits, despite varied success at improving gross margins. Contacts generally anticipate little growth in employment and capital spending in 1995 and wage gains of less than 4 percent.
Manufacturing
Most First District manufacturers contacted in early June continue
to report good growth in shipments, with year-over-year gain,
ranging from 5 to 16 percent. Almost half of the respondents see no
evidence that demand is weakening; among the rest, two-thirds note
signs of modest deceleration, one-third has experienced a
significant slowdown in incoming business in recent weeks. Contacts
observing signs of weakness tend to serve customers in the auto or
other consumer-goods industries. Several respondents mentioned that
the dollar depreciation is supporting sales overseas.
Views on input coats are mixed, with some contacts reporting that materials prices are stabilizing but others seeing no moderation in rates of increase. In particular, firms using oil-based and paper products (resin, polyester, pulp, paper and packaging materials) note little or no deceleration. Most contacts have achieved selling price increases on selected products, with the increases ranging from 1 to 5 percent. A minority have unchanged prices or across-the- board gains.
Most contacts report that employment levels are little changed from a year ago, however, two have had recent layoffs, and three cite job gains ranging up to 12 percent. While a few firms mentioned that overtime hours are down, no additional layoffs are planned. By contrast, one-third of the firms have current openings or hiring plans.
First District manufacturers surveyed generally expect capital spending to equal or exceed last year's pace. The increases cited range from 10 to 100 percent. Roughly half of the contacts mentioned the need to ease capacity constraints.
Looking ahead, most contacts describe themselves as wavering between hopeful optimism and watchful concern. They contrast their own order books with media reports and are keeping a wary eye on the auto industry, Congress, the stock market and corporate earnings. Some foresee further deceleration in growth; no one expects a recession.
Residential Real Estate
The residential real estate market continues to show signs of
cooling off, with brokers in all parts of the region noting a
decline in spring sales versus the previous year. The inventory of
unsold houses is reported to be rising across New England, even in
previously strong markets in suburban Boston. However, respondents
in Maine and Rhode Island note that traffic has increased in the
last 6 weeks and attribute this improvement to the recent decline in
interest rates. Other contacts expect the drop in rates to stimulate
activity in the near term as consumers recognize the new lower
rates.
New construction is reported to be significantly slower, as many builders struggle to sell "spec" houses built in anticipation of a stronger spring market. One Massachusetts builder noted that this was his worst spring in a number of years and that layoffs were imminent.
Nonbank Financial Services
Investment management firms report increased assets under management
in the last six weeks and since the beginning of the year. The
increases are due to rising market value of the assets and strong
sales of domestic equity funds. Bond sales are still in net
liquidation, despite recent bond-market gains. Municipal bond funds
have been particularly hard hit because of concerns about the
possible enactment of a flat tax and lingering concerns about Orange
County. Most respondents report stable employment levels this year.