March 9, 2005
Federal Reserve Districts
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Economic activity continues to grow in the First District. Retail and manufacturing contacts mostly say sales or revenues are ahead of year-earlier levels. Manufacturers express concern about rising costs. Software and information technology services cite rising demand, while staffing firms continue to report job growth. Employment is also generally rising, albeit modestly, among respondents in manufacturing and software and IT services. Only commercial real estate markets have failed to improve.
Retail and Tourism
Inventories are slightly up or beginning to level off according to contacts. Vendor prices are generally stable, with some exceptions (both up and down modestly) for food-related items. On the retail side, clothing prices are falling slightly and casual dining prices are up modestly. Employment and wages are steady. Respondents report flat or rising capital spending, with the spending concentrated on upgrading technology and opening new stores.
Tourism-related contacts say travel this winter to New England, with the exception of Boston, has been slow compared to a year ago, largely because of heavy snowfall in Massachusetts and lower-than-average snowfall in the northern states. Respondents expect the weak dollar to encourage international travel. They also hope that improved consumer confidence will boost demand for luxury activities and venues, which have been outpaced by moderately priced hotels and restaurants during the past year.
Most retailers believe the economy is strong and consumer confidence is recovering. They anticipate modest 3 percent to 5 percent gains in 2005. Multiple contacts express concern over health care costs, gasoline prices, and competitive pressures.
Manufacturing and Related Services
While demand for manufactured goods is generally strong, many firms are concerned about sustained increases in materials costs, the declining purchasing power of the dollar in foreign markets, or sharply higher utility bills. Contacts complained of double-digit cost increases for steel, ceramic products, petrochemicals, rubber, plastics, electricity, and natural gas. Some respondents have managed to raise their selling prices and productivity enough to offset margin pressures, but others have not. Several manufacturers report that their customers have become more willing to pay higher prices. By contrast, a couple of contacts indicate they are being more choosy in taking on business out of concern that margins may be inadequate. Selling prices for technologically sophisticated products continue to be flat to down compared to a year earlier, and these types of firms are not as affected by rising input costs as other respondents.
A majority of contacted manufacturers are increasing their U.S. headcounts, mostly in professional and technical positions. Pay increases are generally running in the range of 3 percent to 4 percent. Most respondents intend to keep capital spending roughly unchanged from the amounts spent in 2004, but some that had recently invested in major productivity enhancements report that they are bringing capital spending back down to a "normal" level.
Manufacturers tend to see positive business trends continuing in the coming year. Their biggest concerns relate to margin pressures associated with rising materials costs and uncertainty about their own pricing power.
Commercial Real Estate
Software and Information Technology Services
Contacted companies are adding technology workers and sales staff, although not hiring aggressively. One firm is continuing a "moderate pace" of hiring, while another indicates its plans include "only a handful" of net new hires. One responding company just eliminated a wage freeze that had been in place for over three years; several other firms report 3 percent annual pay increases. Contacts cite little change in capital and technology spending.
Looking forward, software and IT respondents say the situation is favorable. They expect more of the same in the next few quarters--revenues and profits are generally projected to continue growing at current rates.