June 12, 2002
Federal Reserve Districts
|Skip to content
Economic conditions are improving in the First District, according to most business contacts. Manufacturers report that their business is firming or improving compared with recent quarters. Most retailers say sales are picking up, software and IT firms indicate that demand is up either modestly or substantially, and staffing firms cite modest signs of recovery. The region's commercial real estate markets, by contrast, remain in the doldrums.
Some retailers report an increase in employment, while others are holding employment level. A tourism contact indicates that hotels are hiring back service workers who were let go in late 2001. An auto retailer has been hiring in all areas of business. Wage rates are mostly level among retailers, with one company budgeting a 3 percent increase for its fiscal year beginning June 1. Vendor prices are said to be fairly stable. Selling prices are holding steady, although hotel rates are down 15 percent compared to a year earlier. Most firms are increasing their emphasis on promotional sales, rebates, special pricing, and added value.
The contacted retailers are expecting their businesses to improve in the next six months. Most respondents feel positive about the future of the economy, with a few foreseeing no change. One contact says, "Despite the economy being a little wobbly, I think things will improve."
Manufacturing and Related Services
Many contacts cite signs of slightly improving demand in the last month or two. For example, a paper products manufacturer indicates that business customers are replenishing their inventories. A manufacturer of corporate gift products is getting more requests for quotes, and a maker of business uniforms has seen a pickup. A furniture maker says store traffic appears to be increasing.
In contrast to the general tone, some lines of business remain stagnant or are slowing. An aircraft components manufacturer says business is down considerably from a year ago and below plan. Other firms supplying travel- and transportation-related nondurables or services say volumes remain below what they were prior to September 11. One equipment maker reports that financial services firms have cut their purchases, while another says biotech and pharmaceutical firms are increasing their purchases at a lower rate than forecasted.
Selling prices are mostly flat. Manufacturers cite higher costs for fuel and petroleum products such as plastics and resins. Although paper costs reportedly remain low, contacts make frequent mention of possible future increases for corrugated cardboard. Insurance costs continue to escalate.
Manufacturers remain intent on controlling employment costs and deferring unessential capital spending. Very few firms are adding employees, and almost one-half of the respondents are shutting facilities or installing labor-saving equipment. Pay raises range from zero to 3 percent. Budgets for information technology and air conditioning equipment are especially tight.
Although many customer industries are still in the doldrums, staffing firms cite pockets of strength--call centers, telemarketing, and customer services--as businesses step up their marketing efforts. The financial services sector is said to be hiring on a moderate scale. Some contacts report stirrings in the light industrial sector, particularly in assembly and light manufacturing. The technology sector, including software, electronics, telecommunications, aerospace, and defense, is lackluster.
The supply of well-qualified workers is ample. As a result, many applicants display considerable flexibility in terms of wage demands and choice of work. The loose labor market has also caused some companies to bypass temporary employment agencies and hire directly. Those that do hire through temp firms are generally taking longer to hire and are more interested in short-term placements; they are not eager to add permanent workers. Although wage cuts are rare, wage increases are also minimal.
Temporary employment contacts expect the industry to grow during the third quarter, typically the busiest and most critical quarter of the year. Nevertheless, 2002 is not expected to be a banner year for most contacts.
Commercial Real Estate
Software and Information Technology Services
Most contacts are uncertain about the future of the economy and also about their business for the rest of 2002. Contacts whose businesses have grown slowly so far expect growth to continue to be slow or possibly slow further, while those whose businesses are performing well consider the future to be somewhat uncertain. As a result, most software and IT respondents are holding headcounts level, although a couple are reshaping their job mix. Longer-term, many respondents are convinced that latent demand exists and will be activated either when the economy improves or clients decide they cannot postpone software or IT purchases any longer.