January 19, 2000
Federal Reserve Districts
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Reports from businesses in the First District continue to be quite positive into the early days of 2000. Retail sales growth from year earlier was "solid" and exceeded retailers' expectations for the holiday season. Over half of the manufacturers contacted enjoyed more business in late 1999 than in late 1998. Employment at responding firms in the region is generally level. Labor markets remain tight and overall pay increases are in a 3 to 6 percent range. Goods prices are said to be mostly unchanged. Contacts report no significant effects of Y2K on their business activity.
Employment is said to be holding steady. Most retail contacts report that wages are growing at a 4 to 6 percent pace. All contacts indicate that the labor market is very tight and some are having difficulty finding help. Raiding of permanent employees is reported to be common.
Most retail contacts say that consumer price inflation is nonexistent and that vendor prices are either holding steady or, in many cases, declining. One exception is in the tourism sector, where the price of hotel rooms has been increasing for quite some time. Retail gross margins are said to be either holding steady or rising. With the exception of tourism, contacts stress that rising profit margins are due to cost reductions rather than price increases.
Looking forward, retailers are optimistic that consumer demand will remain strong throughout calendar year 2000. Most retail contacts say that they plan to expand their operations in the coming year. Such expansions are not always with brick and mortar, however, as many say they are investing heavily in e-commerce.
Manufacturing and Related Services
Contacts report that Y2K had little if any impact on business. A paper maker, an auto parts supplier, and a bottled water manufacturer detected signs of added sales because of Y2K, but each describes the impact as selective and small in proportion to overall business. A few companies engaged in precautionary stocking--chiefly selected items imported from Asia--but most companies made no adjustments.
Manufacturers are reporting rising costs for petroleum-based products (especially plastics), silicon, glass, selected chemicals, equipment from Asia, and citrus fruits. In some cases, contacts are not yet feeling the full brunt of market price increases because of favorable relations with suppliers or long-term contracts. Otherwise, most materials costs are said to be holding steady, as are most selling prices.
Most respondents indicate average pay raises in the range of 3 to 5 percent, with greater increases at some technology-oriented businesses. Manufacturers generally say that labor markets remain tight. Some contacts indicate less frustration in finding and retaining production help than a few months ago, but others indicate growing challenges.
Capital spending plans are mixed. The majority of contacts expect capital spending to be at least as high in 2000 as in 1999. These firms cite plans for capacity increases or continuing enhancements to computer systems and other equipment. Companies intending to reduce or hold down expenditures mostly cite financial constraints, although a few respondents say that their recent push to upgrade information systems or other equipment decreases the need for further spending.
Residential Real Estate