March 13, 1996 Economic activity continues to be sluggish in the First District.
Retail results range widely, with apparel and hardware stores seeing
sales decline. Other stores are doing better, but all express
concern about consumer confidence. Manufacturing activity is
generally level with a year ago, although some respondents have seen
sales rise. Price pressures continue to be moderate. The residential
real estate market is picking up in most of New England, with home
prices stable. Mutual fund firms in the region continue to expand
their assets under management and increase employment.
Retail
Retailers report most vendor prices remain stable; by exception, the
price of paper has fallen 10 percent over the last few months,
following a steep rise in the first half of last year. Lumber prices
are starting to rise, in anticipation of the spring construction
season. contacts note increased profits in 1995.
Tourist offices report strong activity this winter throughout the
region, thanks to exceptional skiing conditions. International
travelers remain the fastest-growing and most lucrative segment of
visitors to New England.
Manufacturing
Most manufacturers report that selling prices are flat or up
modestly, except for a decline in paper product prices since late
1995. Trends for materials costs vary: contacts indicate rising
prices for specialty chemicals and plastics and resins, falling
prices for wood pulp and most grades of paper, mixed trends for
polyester products, and stabilized prices for lumber and cotton
(although the level of cotton prices reportedly remains high). Some
manufacturers lament that strong competition is limiting their
ability to raise prices, while others expect higher profit margins
this year because of weaker pressures from materials costs.
Half the firms contacted report that employment is little changed
from its year-earlier level, the remainder report decreases. Any new
hiring tends to be selective rather than across-the-board. Several
contacts indicate growing wage pressures. capital spending patterns
vary widely. The largest increases are reported by businesses that
are developing new products or shifting production locations. Other
contacts indicate a pause or decline following last year's heavy
capital investments.
Residential Real Estate Prices have been stable, with no major changes in either direction,
and contacts do not anticipate any large changes in the near future.
While inventories of existing houses are in line with the level of
activity and sales, respondents report overbuilding and excess
supplies of new homes in some areas. Interest rates remain low,
despite small increases in some places recently, and credit is
widely available. Most contacts express "guarded optimism." The
major worry is that interest rates will increase.
The state of the local economy remains a concern in some areas.
Connecticut and Maine continue to do poorly. Conditions in Vermont,
Rhode Island, and the suburbs of Boston have improved, however.
Nonbank Financial Services
First District retailers report mixed results in January and
February. Sales activity compared with year-earlier levels ranged
from double-digit declines to an increase of over 10 percent.
Apparel and hardware contacts suffered the most serious losses, but
the apparel merchants saw a slight improvement in late February and
hope for sales equal to a year earlier throughout the spring. By
contrast, non-apparel non-hardware retailers anticipate sales growth
of 4 to 15 percent over the next several months. Even those doing
well agree that consumers' worries about job layoffs and the economy
are causing them to postpone discretionary purchases. In response,
contacts are generally keeping inventories low and employment
stable. Wage increases of 3 to 5 percent are planned for this year.
Only one contact plans significant store expansions.
Most First District manufacturing contacts report fairly flat sales
relative to a year ago. By exception, sales of industrial parts,
equipment used in commercial construction, cabinetry, and some
consumer nondurables have risen. A number of respondents indicate
recent swings in business. Some makers of consumer products report
that sales were weak in January and stronger in February, a pattern
they attribute to weather fluctuations. A parts manufacturer is
benefiting from an end to temporary shutdowns of automotive assembly
plants. Other respondents, including a paper manufacturer and two
firms supplying discount chains, report being hurt by greater-than-
anticipated reductions in inventories on the part of their
customers.
The residential real estate market in New England is reported to be
doing well. After a slow winter, with low activity almost everywhere
(caused partly by the large amount of snow), business has been
picking up. Respondents report increased interest, high attendance
at open houses, and more people putting their houses on the market.
Although an increase in sales has not yet followed, all contacts are
optimistic about the spring season.
Investment management firms report increased assets under management
in the first two months of 1996. Sales of equity funds were very
strong, but bond funds were in net liquidation. Most respondents
raised employment in the first two months of 1996 and plan further
increases during the rest of the year.