November 27, 2002
Federal Reserve Districts
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The economy remains slow in the First District. Some retailers are slightly more upbeat than in the last report. Manufacturers indicate that conditions remain difficult and some report slowing activity in recent weeks. The office real estate market is weak in the Boston area and sluggish elsewhere in New England. Staffing firms report small improvements from a year ago, but most software and IT companies say demand is down. Contacts are generally hopeful about 2003.
Headcounts are steady, as most retailers are filling only essential positions. Contacts report stable vendor prices. Selling prices are level, with the exception of the tourism sector where hotels, restaurants, and tour companies continue to offer low-priced "package deals." Most retailers claim gross margins are slightly higher than last year. Almost all contacts report little, if any, increase in their 2003 capital spending plans. Some retailers are expecting sales to pick up modestly in the next six months, while others expect flat sales until the third quarter of 2003.
Manufacturing and Related Services
Several firms mention recent dips in revenues. For example, a textile manufacturer says that orders began to fall off in November. A furniture maker indicates that the West Coast port lockout caused a delay in filling orders, while a food manufacturer says the work stoppage resulted in a loss of business to foreign competitors. A paper company reports that e-billing is causing demand to slip again, after a brief improvement in late summer. A biotech firm notes lower-than-anticipated growth because of delayed approval of products by the Food and Drug Administration.
Selling prices are mostly flat to down. Respondents comment that their customers in troubled industries such as airlines and financial services are pressuring them for concessions. Materials costs are largely flat, except for situations in which manufacturers have coaxed reductions from their suppliers.
Most manufacturing contacts say they are reducing employment or holding it steady. No companies report upward pressures on pay. Capital spending plans are mixed. Some respondents are undertaking large initiatives in 2003 involving modernization of their plant or information systems. They say these investments will lead to reductions in labor requirements or increase throughput. Other companies are reducing or holding the line on capital spending.
Manufacturers generally express a hopeful attitude. Several respondents indicate that once the economy improves, so will their business. In the case of business tied to the semiconductor industry, this upturn is said to be unlikely to occur before late 2003. Other firms say they have taken actions to put themselves in a more advantageous competitive position.
Demand for temps is reportedly expanding in microelectronics, light industrial, construction, mortgage, nonprofit, health care, telemarketing, and customer service. Information technology hiring remains negligible while the academic market is losing momentum. Supply continues to exceed demand, even at high caliber levels. Despite what one contact describes as "one of the longest droughts" in the history of the staffing industry and a widespread feeling of uncertainty, respondents are optimistic that brighter days lie ahead. Improvement is foreseen at the end of the first quarter of 2003.
Commercial Real Estate
In the rest of New England, office markets are similarly flat and activity levels are low. Contacts report that industrial and retail space is doing better than the office market. Because they see no signs of improvement, contacts anticipate that the markets will remain weak for the next two to three years.
Software and Information Technology Services
Employment is largely flat, as respondents have either reduced their hiring targets to zero or continued with employment freezes. The exception is medical software producers, who report variable growth in employment. Capital and technology budgets remain largely flat as some companies spend only out of necessity while others take advantage of lower costs to purchase better IT equipment.
The outlook remains guardedly optimistic with an expectation for slow but positive growth in the next year in the absence of geopolitical risks. One respondent is expecting to break even in the first quarter of 2003 and two others expect slight or lackluster growth.