January 16, 2002
Federal Reserve Districts
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The First District economy remains slow but some brighter spots are visible. While revenues or orders are generally down from year-earlier, manufacturers note some signs of stabilization. And some firms, notably those making medical or security-related products, are seeing demand rise. Most retailers report a disappointing holiday sales season, although auto dealers and stores selling home-related products ended the year with sales gains. Residential real estate contacts concur that housing markets in the region are holding up well. While the consensus centers on a weak recovery beginning by mid-year, most contacts are very uncertain about its timing and strength and many are budgeting conservatively for a longer downturn.
Employment levels and wage rates are mostly said to be holding steady. However, the tourism sector is still reducing employment. Selling prices are being discounted to boost sales, and most contacts report either steady or declining profit margins. Capital expansion plans of most retailers have been put on hold. The mood in the First District retail sector is downbeat; most retailers expect a weak turnaround starting in the third or fourth quarter of 2002. Contacts in tourism and discount retail are even more pessimistic; they expect bad times to last through all of 2002.
Manufacturing and Related Services
Despite the prevalence of year-over-year declines, manufacturers indicate that demand for consumer goods improved late in the fourth quarter. For example, several contacts report a recent pickup in orders for home appliances and furnishings, and a maker of automotive parts said that the fourth quarter did not turn out to be as bad as management had feared. Some of these firms attribute the improvement to temporary promotional activity.
Most makers of capital goods and other business products also see signs that business is stabilizing. However, they expect sales to remain weak in the first half of 2002 and to show only modest recovery in the second half.
Contacts report that selling prices and materials costs are flat or down. Sellers of machinery, equipment, information systems, and paper indicate that prices are falling because of competition and requests for discounts (especially on the part of customers in the airline, computer hardware, and financial services industries). Some respondents report that their aggressive supply management efforts have contributed to holding down costs. The only significant cost increases are for insurance, both health and property and casualty.
Manufacturers are budgeting conservatively for 2002. About one-half expect to implement further layoffs or furloughs, and an equal number are freezing pay for all or part of their workforces. The majority of respondents report that capital spending will be tight or reduced significantly. Several publicly held companies indicate that these actions are responses to external pressures to conserve cash.
Residential Real Estate
With the exception of the health insurance contact, insurance companies expect to hold capital spending and employment levels mostly flat in 2002. A couple of contacts mention a new focus on cutting costs by more fully utilizing technology already put in place. Generally, insurance respondents view 2002 with "guarded optimism." Most expect the economy to begin to improve at mid-year.