November 1, 2000
Federal Reserve Districts
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The First District economy continues to expand at a moderate pace, although signs of slowing continue to emerge. Most manufacturing contacts are doing more business than a year earlier and retailers' sales are meeting expectations. Labor shortages remain a problem. Manufacturers are paying more for inputs and raising their own prices more than in previous reports. Local retailers, however, say vendor price increases are only sporadic and selling price increases are nonexistent. Real estate contacts say housing markets in New England have slowed.
Merchants generally say that they are not raising selling prices and that vendor price increases are only sporadic. Two exceptions are that lumber prices continue to decline and hotel rates are rising in response to continued excess demand for rooms. Most contacts do not seem concerned about higher fuel prices; retailers say that profit margins are slightly higher than a year ago because of improvements in productivity or efficiencies elsewhere in their cost structures.
Most retail contacts plan some modest expansion of their operations during the next six months. Looking forward, they are generally optimistic about the overall economic outlook as well as their own sales growth prospects through the first quarter of 2001. However, they express considerable uncertainty concerning prospects beyond the first quarter.
Manufacturing and Related Services
Close to one-half of the manufacturing contacts say that parts shortages or capacity constraints either have caused production delays recently or are expected to cause delays in coming months. Items in short supply include electronic components, some metals, and oil derivatives.
Manufacturers indicate that they are paying much more for plastics and fuels. There are also reports of upward cost pressures for paper, chemicals, metals, and postal and shipping services. Some contacts have managed to reduce input costs by finding alternative suppliers or holding on-line auctions. About one-third of the contacts report that they have raised prices or will do so shortly. However, manufacturers selling to large retail chains or automakers indicate that these customers are forcing them to constrain or reduce their prices.
Employment is largely flat or up modestly, although some firms in technology industries are expanding rapidly. Several companies indicate they would hire more workers were it not for very tight labor markets. Production worker wage increases are typically in the 3 to 4 percent range. Professional, technical, and managerial salary increases are mostly 5 to 7 percent, with several respondents indicating that they have had to make greater upward adjustments than originally budgeted.
Some insurance contacts continue to note difficulty in finding and retaining employees in the information technology and systems areas. Attempting to increase retention, some mentioned programs to improve the work environment in addition to wage increases. Most contacts continue to say that salaries are increasing in the 4 to 5 percent range.
On average, contacts are slightly more optimistic about their outlook now than in July. Two areas of concern, however, are the effects that a downturn in the stock market would have on the default risk of corporate bonds and the implications of possible changes in the health care system on health insurance markets.
Residential Real Estate