Beige Book Report: Boston
May 8, 1996
The First District economy is expanding at a moderate pace. Retail results in March and early April were mixed, ranging from double-digit sales gains to double-digit declines from a year earlier; some of the laggards saw a pick-up in recent weeks. Manufacturers are more upbeat, with most reporting solid first-quarter gains. Inventory levels are not out of line, according to both retail and manufacturing contacts. With few exceptions, selling prices and input prices are said to be stable. Commercial real estate markets in most of New England are improving slowly. Insurance sales are increasing.
Retail
First District retailers report extremely varied results in March
and April. Chains selling upscale apparel or specialty non-apparel
cite sales increases ranging from 4 to 13 percent over year-earlier
levels, and one food chain notes unusual gains of 21/2 percent.
Other contacts posted 0 to 10 percent losses in March and early
April. A few of the latter, however, are encouraged by a very recent
pickup in sales activity, attributed to the long-awaited arrival of
spring. Retail respondents are moderately optimistic about the
economy over the next six months and anticipate sales growth of 0 to
5 percent. They continue to express concern, however, about tough
competition, particularly from national chains which are
strengthening their position in the region. Vendor and retail prices
remain stable. While gross margins are typically holding, profits
vary greatly. Retailers are satisfied with current inventory levels;
many contacts have updated their inventory systems in recent years.
Less than one-third of respondents anticipate growth in capital
spending and employment this year. Wage increases of 2 to 5 percent
are expected.
Manufacturing
Almost all First District manufacturing contacts indicate that first
quarter 1996 revenues increased from a year earlier, with close to
half experiencing double-digit growth over this period. For most,
recent sales trends are similar to those in the second half of 1995.
Especially large gains relative to a year ago are reported for
computer networking and miscellaneous microelectronics products,
industrial machinery, and equipment used in residential and
commercial construction. (Some contacts alluded to press reports of
a slowdown in the semiconductor industry while indicating that their
own related business is in good shape for the next 6 to 12 months.)
Respondents report that sales of equipment to the pharmaceutical and
health care industries are growing faster than in 1995, while sales
to the automotive industry have slowed slightly. Demand for apparel
textiles generally remains weak, although one contact cites positive
trends for materials used in upscale clothing.
Inventories generally are in line with plans. Many respondents indicate long-term efforts to reduce their inventory-to-sales ratio, however, and some firms in the textile and paper products industries report modest degrees of overstocking. One contact expects customers to stock packaging materials in anticipation of a price increase for polyethylene.
Selling prices and materials costs are reported to be largely stable. Some respondents have raised prices to reflect higher-cost steel and other metals or to improve margins. Paper and wool prices reportedly have softened after rising considerably last year.
About three-quarters of the respondents have increased employment during the past year, but future trends are expected to be more mixed. Some manufacturers report difficulties filling software and telecommunications positions, but none indicates generalized wage pressures. Investment plans vary widely; over one-third of those contacted mention efforts to rein in capital spending.
Commercial Real Estate
Commercial real estate in New England has improved somewhat lately.
Most markets are beginning to recover from the long winter. Contacts
report gradual absorption of the existing stock, leading to slowly
decreasing vacancy rates. No major new construction is reported. In
addition, confidence is said to be low, preventing developers from
making new investments and banks from lending them money.
Rental rates have been going up slightly or have leveled off in most markets. However, contacts view these price movements as too small to make up for the large price decrease that took place over the last several years. While downtown Boston and the greater Boston area have been doing very well, Maine, Rhode Island, and Connecticut have seen only very minor increases in activity. In all the states, the retail market seems to be the slowest to recover, while the industrial sector and apartment building sales are stronger.
Nonbank Financial Services
Respondents at insurance companies reported an increase in sales in
the first quarter of 1996 compared to the first quarter of 1995.
Employment, however, continued its downward trend, mostly because of
continuing consolidations and mergers in the region. The
consolidation trend reflects the spread of managed care, as
insurance companies providing fee-for-service health insurance merge
with managed care providers.