December 4, 1996
Federal Reserve Districts
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The New England economy continues to expand at a moderate pace. Most First District manufacturers are posting solid gains, retailers report scattered pick-ups in activity, and personnel supply firms continue to grow, but at a less hectic pace than in the recent past. The region's residential real estate markets are steady and growth continues at money management firms. Prices remain generally stable, contacts say, while wages are rising 2 to 6 percent and some employers note selective hiring difficulties.
Vendor and customer prices remain stable, although one respondent cites continued declines in apparel prices. Lumber prices have stabilized, following a significant rise and fall earlier this year. Retailers have intentionally trimmed inventories compared with a year ago to avoid last January's overstock. Most contacts are posting increased profits and gross margins, which they attribute to better inventory management. Only one retail chain noted major increases in capital spending and employment. Merchants plan to increase wages 2 to 5 percent in 1997.
Materials costs and selling prices remain fairly stable. A recent drop in component costs has led to a larger-than-normal drop in computer prices. Contacts report slight increases in the cost of selected metals, furniture-grade lumber, and chemical products, but falling costs for paper and packaging.
Just over half the respondents report fairly stable U.S. employment levels; most others have increased employment. A couple of manufacturers indicate difficulties finding production workers, but an equal number indicate ample applicants. Companywide pay increases range from 2.5 to 6 percent. In the Boston area, compensation packages to attract key technical employees are said to be escalating rapidly.
Temporary Employment Firms
Industrywide consolidation has increased contacts’ reliance on partnerships and subcontracts with other personnel supply firms. Vendor-on-premises operations dominate, hurting smaller local temp firms and favoring national companies large enough to meet the full range of employment demands of clients.
Demand for highly skilled temporary workers continues to outpace supply, especially in technical and clerical fields. Wages have risen 8 to 10 percent over the past year, but this reflects primarily an influx of workers from higher-paying sectors rather than expanding wages of individual workers. Tightness in the labor market has forced temp agencies to adopt more aggressive recruiting techniques, including automated resume retrieval, personal networks, and the Internet, as well as enhanced pay and benefit packages.
Residential Real Estate
The market in Massachusetts is doing better. Sales have gone up throughout the state, especially in the condominium and new construction markets. Massachusetts had the highest increase in existing home sales in the country in both the second and third quarters. Despite the increase in activity, inventory grew slightly during the third quarter. While median sales prices rose moderately in most of the state, the increases largely reflect a shift in mix as people trade up to more expensive homes.
Overall, most contacts predict that the market will remain steady over the next few months. While low interest rates and a generally positive economic outlook should stimulate sales, activity usually slows in the winter.
Nonbank Financial Services