March 12, 1997
Federal Reserve Districts
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Business contacts in the First District are fairly upbeat at the beginning of 1997. Most retailers report solid, sustainable sales growth, although a few sectors are weak. Manufacturers are seeing revenue gains as well, with over half the contacts reporting sales 8 to 20 percent ahead of a year earlier. Input prices and selling prices are mostly flat. Residential real estate continues to do well in New England and assets under management continue to rise at investment management firms. Most contacts in all sectors say they face tight labor markets for some occupations, but they cite only moderate increases in general wage levels.
Retail employment is reported to be fairly level, and most retailers are expanding capital moderately. The exception is building materials and furnishings stores, which are expanding their work forces and making major capital investments. All contacts report rising employee turnover and increased difficulty replacing workers. Wages are said to be rising about 4 percent.
Respondents report that they are holding their prices steady, largely because competitive pressures constrain their ability to raise them. Only the discount retail sector engaged in significant price cutting during the last quarter (primarily to move product in the Christmas season). Profit margins are holding; retailers say they are operating more efficiently in order to offset rising wage costs.
Most contacts report that, overall, materials costs are flat or down somewhat. Costs for some metals and furniture-grade lumber are rising, however. Selling prices also remain largely flat, except for small to moderate increases for fabricated metals, industrial equipment, and paper products.
Only one-quarter of the respondents have made substantial net new hires over the past year; the remainder report very little change in head counts. Most contacts anticipate only moderate increases in their work forces in coming months, while describing capital expenditures as heavy or rising. About one-half report delays in filling positions in information systems, engineering, technical sales, or finance. Wages and salaries are mostly rising in the range of 2 to 4 percent but considerably faster for some computer-related specialists; manufacturers generally do not view these increases as inflationary.
Manufacturers expect current business trends to continue for the remainder of 1997, although several express concern that the strong dollar could damp exports, and a couple mention upcoming labor negotiations as a potential challenge.
Temporary Employment Firms
Respondents are feeling both wage and price pressures. Wages are rising at an 8 to 10 percent annual rate. Yet, as temporary services firms attempt to pass these increases on to their client firms, they face more aggressive price negotiations.
Residential Real Estate
Massachusetts is doing particularly well, with 1996 showing the highest-ever annual increase in residential sales. Despite this record increase in sales volume, house prices continue to increase at a slower pace than during the 1987-88 real estate boom. Within Massachusetts, areas inside Route 495 are doing best, while the Springfield area is weakest. Other states are also doing well. Southern Connecticut and southern New Hampshire are reported to be very strong, and Maine and Vermont are both starting to pick up.
Nonbank Financial Services