January 17, 1996
Business activity in the First District continues to expand slowly, with sectoral patterns following those previously reported. Retail contacts again report mixed but generally disappointing results; manufacturers remain more upbeat, with many experiencing solid growth. Price pressures are reportedly minimal. Temporary employment continues to expand. Most sectors and areas in the region's commercial real estate market are holding their own. The insurance industry saw sales pick up in the fourth quarter.
Retail
First District retailers express disappointment with the lackluster
holiday season, despite a burst of last-minute shopping activity
before Christmas. Some respondents report sales declines of up to 10
percent in November. Sales levels at contacted firms in December
ranged from 10 percent declines to 5 percent gains from a year
earlier. Apparel continues to sell poorly. One bright spot in
December was the high demand for snow-related equipment, which
offered home supply and hardware companies some relief from an
otherwise steady decline in sales for most of the second half of
1995. Retail respondents view the first half of 1996 with
uncertainty, anticipating sales changes ranging from 6 percent
decline to 5 percent growth.
Most vendor prices remain stable, including the prices of lumber, leather, and paper, which earlier had increased dramatically. One contact cites recent price increases on fabric and foam upholstery. None of the contacts reports increases in customer prices. Gross margins held or declined slightly for most of 1995, but profits were generally down because of sluggish sales. Contacts do not expect to expand employment and many plan cuts in capital spending in 1996.
Manufacturing
First District manufacturing contacts generally report that sales
are ahead of year-earlier levels. Microelectronics and innovative
computer-related products continue to experience robust growth.
Machine tool demand is higher than a year ago. Sales to the health
care industry are described as either recovering or continuing to
grow. Except for selected gains in market share, makers of consumer
durables products and parts report zero to slow growth in revenues
from a year ago.
Many contacts report little or reduced cost pressure, while selling prices are flat on average. Prices for chemicals, rubber, resins, lumber, and fabrics are reported to have stabilized or declined. Paper and metals costs continue to increase, however. One-third of the respondents express concern about profit margins in view of the competitive pricing environment.
Capital spending trends vary widely, but about one-half the contacts report aggressive programs to modernize or expand their facilities. Compared to a year earlier, U.S. employment is flat to up slightly at one-half of the firms contacted. Another one-quarter report making substantial net new hires, while the remaining one-quarter have cut back through attrition. Businesses that are hiring report that strong competition is forcing higher compensation for information systems specialists. In addition, a couple of contacts located outside major metropolitan areas indicate difficulties finding qualified production workers. Manufacturers report average wage and salary increases of between 2 and 4 percent, which they tend to view as modest.
Most contacts expect reasonably good outcomes in 1996, given an environment of moderate GDP growth and little inflation. Several have modified their sales projections, however, because of sluggish automotive sales or financial difficulties at retail chains.
Temporary Employment Firms
Personnel supply firms report good performance overall for the
fourth quarter of 1995. Demand for workers in technical and
specialty fields remains high, and contacts note an increase in
high-tech workers voluntarily leaving full-time payroll employment
to work on a contract basis. Vendor-on-premises operations, in which
a personnel supply firm contracts to perform all of a client's
recruiting and hiring functions, continue to enjoy popularity among
larger clients. Smaller, more specialized personnel supply firms
have begun subcontracting with the larger firms winning the vendor
contracts to obtain employee placements. All those contacted were
optimistic about continued growth in 1996.
Commercial Real Estate
Respondents generally agree that the commercial real estate market
in New England has been steady. Most contacts complained about a
weak Christmas season and its effects on the retail sector. Although
no increases in retail vacancy rates have been seen yet, respondents
anticipate higher vacancy rates and lower rents in the near future.
The office market has either recovered or remained flat everywhere
except for Hartford, where mergers and bankruptcies have led to
rising vacancy rates. The downtown Boston office market has been
flat, with no new office buildings added and slightly higher rents.
The suburban Boston office market, by contrast, has been doing very
well.
Nonbank Financial Services
Most respondents at insurance companies report strong sales in the
fourth quarter of 1995. However, sales for 1995 as a whole are
reported to be slightly below sales for 1994. Employment at
responding companies was flat to down in the fourth quarter. Several
respondents expect employment to decline in 1996 on account of
mergers and consolidations.