March 2, 2011
Federal Reserve Districts
|Skip to content
Business contacts in the First District report improving economic conditions. Most responding retailers, manufacturers, staffing firms, and software and information technology services companies cite increases in sales or revenue compared with a year ago, and in some cases, strong increases. Commercial real estate markets across New England are stable to improving, while residential markets remain weak. Both retailers and manufacturers mention price pressures from specific commodities, including copper and oil, with some pass-through to customers. Firms in several sectors are doing or planning some hiring, generally at a modest pace. Outlooks are positive, with firms in most sectors expecting either steady or improved growth in demand for their products and services.
Retailers say they are tightly managing inventory levels. Contacts note cost increases for commodities, including cotton, copper, and plastics, and they expect vendor price pressure to continue or increase in the future. Reflecting those pressures, most respondents report they are implementing more increases in selling price than three or six months ago. They continue to raise headcounts in line with new store openings and report that capital spending plans are in line with expectations for the year. Outlooks are generally cautiously optimistic, with most contacts continuing to forecast slow and steady improvement in 2011.
Manufacturing and Related Services
Most contacted firms note that business has stabilized and appears to be continuing on a favorable trend in early 2011. This includes a few manufacturers whose outlooks were more negative three or four months ago. In contrast, a business equipment supplier's report was more subdued, as its clients continue to extend leases on existing products rather than upgrade to newer ones. Firms that produce products for the housing market also report some continued weakness, as does a manufacturer of retail goods catering to lower income consumers. This firm notes that the weakness in demand has continued into the first part of 2011, but it does not anticipate a prolonged slowdown.
Many manufacturers report concerns over the rising cost of raw materials such as steel, copper, and rare earth metals, as well as oil and plastic resins. A defense contractor contact says he is much more concerned about rising raw material costs now than three months ago, especially since most of the firm's selling prices are fixed by long term contracts. Other manufacturers report raising their selling prices 3 percent to 6 percent in early 2011 in response to higher costs, although one is unsure whether the increases will stick. A number of contacts worry that raw material prices are headed back to their early 2008 levels. Firms with limited raw material exposure, however, continue to report stable prices.
Some manufacturers report higher inventories than a year ago or plan to increase their current inventory levels somewhat. Some of this restocking is in response to higher demand, while other firms are hedging against supply chain disruptions and/or higher expected input costs. The pickup in demand has resulted in plans for additional hiring at some firms; other firms also plan to add workers as part of ongoing hiring plans or to better position themselves for expected future demand. Hiring rates remain relatively low, however, and two contacted companies plan modest layoffs as part of ongoing restructuring. In addition, most responding firms plan to increase wages 2 percent to 3 percent in 2011--a lower rate of increase than in the pre-recession years; a few firms, however, plan slightly higher wage increases for more skilled workers to address increasing recruitment and retention difficulties.
Capital spending plans are reportedly on par or somewhat higher this year than last year. In general, firms that plan to increase investment said that they need to upgrade or expand existing structures and systems; some of this increased investment will be directed toward production facilities overseas. Overall, contacted manufacturers seem more upbeat now about current and future economic conditions than in recent months.
Software and Information Technology Services
Commercial Real Estate
Residential Real Estate
Compared with a year earlier, the median price of homes moved upward in December throughout the region except in Massachusetts, where the median price decline was the first in over a year. Contacts anticipate sales declines for the early months of 2011 as a result of recent snowstorms. Pending sales of homes and condos in Massachusetts fell in January compared with a year ago.
Contacts throughout the region expect modest increases or flat sales in 2011. However, some note that 2011 comparisons with sales in the first six months of 2010 may be misleading, as home sales in that period were boosted by the homebuyer tax credit.