May 3, 2000
Federal Reserve Districts
|Skip to content
Business contacts in the First District remain upbeat. Retailers indicate their sales are in line with expectations and manufacturers report "solid" increases, with revenues or orders for some sectors or products very strong. Average pay increases remain in the 3 to 5 percent range, with larger increases for information technology workers and increased use of a variety of performance-based pay incentives for a wide range of professional and technical workers. Except for oil-related products, both manufacturers and retailers report little evidence of inflation. While a few manufacturers are raising prices, materials costs and vendor prices are mostly flat and large manufacturers continue to put pressure on their suppliers for price reductions. Recent stock market shifts and interest rate increases are said to be causing modest increases in uncertainty about the outlook.
Retail respondents indicate that they plan very little expansion of their operations over the next six months. On the basis of the economy's currently strong fundamentals, most contacts expect steady growth to continue through the year 2000. However, in the furniture and apparel sectors, uncertainty has crept into the outlook for the second half of calendar year 2000.
Manufacturing and Related Services
Materials costs are largely flat even though many manufacturers are paying more for oil-based products, fuel, and freight. Apart from energy, respondents report few instances of higher quotes and generally they are pressuring their suppliers to hold the line or offer more attractive terms. Manufacturers selling building products, office supplies, plastics products, and selected consumer items have raised prices in the range of 2 to 5 percent. Selling prices are steady or down slightly in the case of information technology companies and those manufacturing equipment related to biotech and semiconductors. Firms making machinery and equipment for the aircraft and automotive industries report continuing pressures to reduce prices.
Except for a few firms that are expanding aggressively to meet rapidly rising demand, most respondents report that employment levels are flat or up slightly. Most employers report average annual pay increases in the range of 3 to 5 percent. However, the average increase is higher at IT firms, and respondents in a variety of industries are reacting to very tight labor markets for professional and technical employees by increasing signing bonuses, stock options, promotion rates, and performance-based compensation. Other responses to tight labor markets include contracting out more engineering and software work (including overseas) and raising expenditures on equipment and information systems.
Various manufacturers mentioned that sharp reductions in stock prices or sharp increases in interest rates could adversely affect the economic climate. However, respondents remain upbeat about their revenue and earnings prospects absent large, unforeseen shocks.
Residential Real Estate