October 30, 1996
Federal Reserve Districts
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Economic expansion remains solid in New England. Reports from contacts in retailing, manufacturing, and commercial real estate all have a positive tone. Insurance companies indicate mixed results. Input and materials prices are generally little changed; some manufacturers are raising prices. A recent forecast of the New England economy predicts current trends will continue, with employment growing more slowly than in the nation and unemployment remaining low.
Vendor and customer prices generally remain flat; one contact, however, noted a temporary price hike for European shoe leather. Gross margins and profits vary, and most inventories are high in anticipation of the holiday season. Several contacts plan new store openings in 1997 and expect small gains in employment as a result. Wage increases of 2 to 5 percent are anticipated.
A couple of contacts note medical supply markets as a source of rapid growth. A textile manufacturer detects a small improvement in apparel retailing, after several slow years. Several respondents mention adverse effects of foreign imports. For example, a maker of high-quality furniture notes that while his own business is thriving, the U.S. furniture parts industry is shrinking because of competition, especially from China. Automotive suppliers indicate a need to develop other products because carmakers increasingly are turning to low-cost offshore suppliers. Exporters tend to be experiencing slow business in Europe, but rapid growth in Asian markets.
Most manufacturers report that overall materials prices are similar to or lower than a year ago. Chemicals prices are rising, but contacts indicate that the increases are selective or smaller than a year earlier. About one-half of the contacts report that their selling prices remain unchanged. However, a maker of consumer durables recently raised prices by 7 percent, and several nondurables manufacturers, including firms in the paper products industry, report price increases in the 3 to 4 percent range. In contrast, a machinery manufacturer whose business has recently slowed has instituted a temporary price reduction for one product line.
About one-half of the manufacturing contacts report stable employment over the past year; most of the remainder have reduced their head counts. Currently, more respondents are adding than are cutting employment, but contemplated changes generally are modest. Although a couple of contacts report wage freezes, most have raised pay 2 to 4 percent this year. Most respondents state that labor availability is not a problem.
Commercial Real Estate
Despite strong markets, most contacts report little new construction. The low rate of construction constitutes the main difference between the current boom and the 1980s, and it reflects banks' reluctance to extend credit for speculative construction as well as more caution by everyone. Most contacts predict, however, that continued favorable economic conditions may soon lead to more construction.
Nonbank Financial Services