Beige Book Report: Boston
June 19, 1996
The First District economy expanded moderately in April and May. Manufacturers generally report solid growth, residential real estate had a strong first quarter, and temporary employment firms and money management businesses continue to grow. By exception, retailers report disappointing sales, citing continued upheaval in the region's retail sector. Input prices are mostly stable, while some manufacturers are raising selling prices slightly.
Retail
Many retail contacts in the First District express disappointment
with April and early May sales growth, which ranged from 22 percent
declines to 7 percent increases compared with year-earlier levels.
Shopper traffic was particularly slow in off-price discount chains.
The exceptions were a retailer of home furnishings with double-digit
sales growth in April and May, and a hardware chain reporting
record-breaking sales in late May, which they attribute to the
arrival of summer weather. Most retail respondents are optimistic
about the economy for the second half of 1996, anticipating sales
growth ranging from flat to 15 percent over previous year levels.
Off-price discount retailers note, however, that fierce competition
is likely to force more companies into bankruptcy.
Most vendor and retail prices remain stable; an exception is lumber prices, which have risen steeply in the last six weeks. Gross margins typically are holding or improved, while profits vary greatly. Contacts are satisfied with their inventory levels. Only one respondent reports major increases in capital spending and employment for this year or the next.
Manufacturing
Two-thirds of the First District manufacturers contacted report
solid sales gains relative to a year ago. Areas of improvement
include consumer durables and nondurables, as well as a broad
variety of capital goods. Companies tied to the automotive industry
expect favorable conditions to last at least through 1997. By
exception, demand for hospital equipment continues to be held down
by managed care, and conditions in the paper industry are weaker
than a year ago. Contacts report that European markets, notably
Germany, remain sluggish. Other than Latin America, sales to
developing countries are said to be growing (although sometimes from
a low base).
During 1995, paper users had been accumulating stocks aggressively in anticipation of rising prices; these holdings have been reduced, and one contact says further declines are warranted. Most other manufacturers believe their inventory levels are appropriate, although inventory/sales ratios continue to adjust to structural changes. For example, one manufacturer of consumer durables indicates a need for higher stocks of finished goods because retailers are reluctant to hold inventories in advance of the holiday season.
Over half of the contacts are achieving small increases in selling prices, while most report that prices of raw materials are flat to down. The prices of paper and plastics, in particular, have fallen from year-ago levels. By contrast, prices of foam, polyester yarns, glues, and some metals are said to be creeping up.
Almost half the sample report increased employment over the past year. Low rates of local unemployment are causing some firms to recruit professionals from other parts of the country. Wages and salaries are said to be rising in the range of 2 to 5 percent.
Temporary Employment Firms
Demand for temporary services remained strong over the first half of
1996. Information technology continues to lead the other sectors,
but contacts report modest demand-driven increases in wages in most
fields, especially for highly skilled workers. Industry sources note
a renewed interest in "temp-to-perm" placements, in which companies
hire a worker through an agency for a trial period before making a
permanent employment offer.
Residential Real Estate
Contacts report that the residential real estate market was quite
strong in the first quarter of the year, but have mixed views as to
developments in the last two months. Houses in eastern
Massachusetts, Maine, and Vermont are reported to be selling at a
rate well above year-ago levels, with the growth in eastern
Massachusetts and Maine expected to continue at least through the
end of the summer. Sales in Rhode Island, however, have slowed since
the flurry of activity in the spring. Activity in western
Massachusetts and Connecticut is also sluggish. Inventory levels are
adequate in most areas, with a few contacts reporting isolated
shortages. Prices are increasing at a rate of 3 percent, with
individual appreciation rates ranging between 0 and 5 percent.
Nonbank Financial Services
Investment management firms report that both assets under management
and net sales have increased since the beginning of 1996. Most
respondents have increased employment in the last two months,
particularly in retirement plan administration, computer systems,
and operations; candidates are reportedly scarce in these segments
of the job market.
The Outlook
The New England Economic Project (NEEP), a nonprofit forecasting
group, released its semiannual regional forecast in May. NEEP
projects 1.4 percent employment growth for New England in both 1996
and 1997, down from the 2.2 percent pace in 1995. Business and other
non-health services are projected to show the fastest expansions in
employment. The number of jobs in manufacturing and finance-
insurance-real estate is expected to decline slightly in 1996,
followed by a small increase in 1997.