September 17, 1997
Federal Reserve Districts
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The First District economy continues to expand steadily. Sales are rising at most retail, manufacturing, and temporary employment firms contacted. Meanwhile, investment management firms continue to see increases in assets under management, and residential real estate markets are doing well. Manufacturers and retailers say wages are rising 3 to 5 percent and prices are generally level.
Employment is said to be either increasing or holding steady. Contacts that are increasing employment are staffing expanded operations. Most contacts report difficulty attracting help and a corresponding decline in available labor quality. Labor market tightness, however, is not translating into higher wages. Wages are said to be increasing at a 3 to 5 percent annual pace. Contacts say that they are not offering wage premiums to attract labor, with the exception of computer systems professionals.
Respondents report that competitive pressures continue to constrain their ability to raise prices. As a result, prices are either level or, in a few cases (discount retailing, appliances, and footwear), declining. Materials costs are holding steady. Most contacts say that profit margins are unchanged or increasing slightly. Increases in profit margins are attributed to efficiency improvements such as better inventory control, automation, and purchasing efficiencies. All respondents say that capital expansions are currently under way and will continue for many months. Looking forward, retailers expect steady, sustainable growth with low inflation through the first quarter of 1998.
Most respondents report that, overall, both materials costs and selling prices are essentially flat. Plastic resin prices have risen dramatically, however, and minor increases are reported for chemicals, metals, and cotton. Paper and furniture-grade lumber prices are said to have been more stable in recent months following double-digit decreases and increases, respectively.
Domestic employment has increased in the range of 4 to 7 percent from a year ago at one-third of the manufacturers contacted. Most others report little change in headcount. Manufacturers generally cite average wage and salary increases in the range of 3 to 5 percent. Pay increases are greater for specialized technical and marketing occupations and are being augmented by bonuses and stock options at some companies.
About one-quarter of the manufacturing contacts report capacity constraints and about one-half are making heavy capital investments this year. Investment projects are related to product introductions and productivity enhancements in addition to capacity expansions. Most of the remaining respondents describe capital spending as flat or normal.
Manufacturers generally appear sanguine about future trends. No contacts detect signs of a noteworthy deterioration in business over the next six months, and many are upbeat about opportunities to market their products or to control costs.
Temporary Employment Firms
Residential Real Estate
Nonbank Financial Services