|Skip to content
The pace of economic activity is slowing in the First District but, for the most part, growth continues. Retailers cite weaker results in the past few months than before the holiday season. While a majority of contacted manufacturers report growth in sales or orders, they also cite signs of weakness. Both retailers and manufacturers say rising energy prices are raising costs, but they report very few increases in their own selling prices. Contacts in business services industries--software, information technology, and personnel supply--report slower demand than when last contacted in November. Commercial real estate respondents say markets are strong but appear to be weakening.
All retail contacts report either negative or weak sales growth during the December through mid-February period, but the timing of the slowing differs. Sellers of consumer electronics, computers, furniture, and construction materials note sales declines during the months of November and December 2000. Then in January and February, spending on consumer electronic products is said to have rebounded strongly, while sales in the other categories either stabilized or grew modestly. Upscale retail sales reportedly mirrored fluctuations in the stock market, with modest growth during December and January, but declines or no change in November and February. Despite weak results, unplanned inventory accumulation was reported only by contacts in consumer electronics and upscale retail. Contacts in the tourism sector say growth slowed unexpectedly in the November through February period.
Retail respondents are holding employment levels steady. Wages continue to rise at a 3 to 6 percent pace. Most contacts report that store prices are steady. While hotel room rates continue to rise, the rate of increase has slowed. Across the board, retailers say that higher energy costs are raising overhead, but productivity gains are holding down total costs. Looking forward, the mood of retailers has turned cautious. While all retail respondents expect weak economic growth during the first half of 2001, most say they are continuing with previously planned expansions of their operations.
Manufacturing and Related Services
The majority of First District manufacturing contacts continue to indicate that recent sales or orders are up relative to a year earlier. However, even firms that are experiencing growth note areas of weakness or are making contingency plans in case business softens. Companies whose overall revenues are falling include makers of industrial machinery and some consumer goods. One consumer products manufacturer indicates that major retailers are reducing inventories significantly even though their sales are not declining. Contacts producing aircraft components, biotech products, information products, and business services report strong growth in these markets. Respondents selling to the semiconductor industry note a recent weakening in sales, particularly for items used in cell phones, personal computers, and printers, but their overall revenues remain ahead of year-earlier levels.
Utility and transportation costs are up from a year ago, in some cases considerably. Contacts also report paying more for petroleum-based inputs, chemicals, and metals. Selling prices remain mostly flat or rising at a low single-digit rate. Many respondents indicate that they cannot raise prices for fear of losing business. Most manufacturers report little net change in U.S. employment, although one-quarter of the sample plan deep cuts. Some contacts indicate that the number of vacancies has fallen for salaried technical personnel. Based on current trends, most contacts expect this year's wage and salary increases to be on par with last year's, although some expect a slight moderation.
Capital spending plans are mixed and reflect some caution. For example, one manufacturer is putting some projects on temporary hold. Another plans to subcontract out some production in order to avoid making capital expenditures in economic uncertainty. Still others say they will focus on leveraging the capital they have, rather than incurring new costs.
Software and Information Technology Services
Most respondents in software and information technology services report slower demand than when last contacted in November. One respondent who provides custom application development software reports that large corporations are pulling orders because of fears about the economy. While a few respondents worry that perceptions that the economy is going into a downturn will be self-confirming, all are still optimistic about the long-term potential for their companies. All of those contacted say that the labor market for technology workers is still tight, notwithstanding some softening attributable to the drop in competition from dot-coms. Wage pressures in the Boston area seem to be abating slightly.
All contacts in the temporary employment industry report a noticeable slowdown in demand since the turn of the year. Hiring has slowed most significantly in information technology (IT) and manufacturing. Demand for financial analysts, accountants, and office support seems to be holding up. Most respondents report little growth or slight declines in revenues and profit margins compared with a year ago. Some clients have instituted hiring freezes; others are canceling orders. Wage increases have slowed--most contacts report moderate to no growth. On the supply side, recruiting IT workers is said to be easier than before, but office support workers are still hard to come by. Most respondents view the recent slowdown as only a short-term phenomenon and expect their business to pick up in the spring.
Commercial Real Estate
Commercial real estate is still reported to be strong in most of New England, although signs of weakness are beginning to show. Contacts in the Boston area report that some dot-com companies have backed out of their leases or are trying to sublease their space. This has not yet led to price declines; indeed, most contacts report prices and rental rates to be "as high as ever." However, vacancy rates in Boston have increased slightly over the past few months. New Hampshire and Rhode Island contacts report strong markets, but respondents from Maine say commercial real estate there has slowed.