September 3, 2003
Federal Reserve Districts
|Skip to content
Conversations with First District business contacts again have a positive tone. Retailers say sales were up modestly during the summer months, and manufacturers report second quarter demand improvements in selected areas. Temp firms and software and IT companies also see some pickup. Commercial real estate markets are said to be stabilizing. Contacts in all sectors indicate that they remain cautious.
Most contacts report employment is steady, though two retailers expect their headcount to increase by at least 100 over the course of the year. Some respondents recently implemented annual salary increases, ranging from 2.5 to 3 percent, while the majority report no changes. Vendor prices are mostly stable, with selling prices flat to down. Capital spending plans are mixed among contacted retailers, with about half holding spending steady. New store openings account for most increases, while decreases reflect computer-related cutbacks.
Looking forward, most surveyed retailers anticipate slow sales growth over the next six months. Most contacts express greater optimism about the future of the economy than in the recent past. However, some retailers note concern about high unemployment rates, the possibility of rising interest rates, and the continued threat of terrorism.
Manufacturing and Related Services
Manufacturers also report that retailers and other major customers continue to demand price concessions although a few contacts have achieved small increases in selected prices. Downward price pressures reflect manufacturers' excess capacity and customers' increased use of online bidding. With prices for materials, other than petrochemicals, also flat to down year-over-year, respondents plan to improve margins through ongoing efforts to cut production costs.
Labor demand appears to be stabilizing at surveyed manufacturers. A majority reduced employment in recent months, but most hope to avoid further layoffs. A few have increased overtime or are hiring for specific divisions. One noted that experienced engineers are scarce.
A few firms are increasing their capital spending markedly in 2003 from 2002 levels as they "chase" technology or install long planned lean manufacturing systems. But over half are spending "carefully"--below last year, below budget or below norm. Most point to idle capacity.
A majority of contacts express cautious optimism about future prospects, with several noting that the outlook for profits or sales is better than expected recently and may even be improving. However, most view the improvements to date as modest and the challenges as daunting. Thus, they continue to plan conservatively and to hunt aggressively for savings.
Several staffing companies report that some applicants have received multiple job offers, which respondents interpret as a sign of demand growth. Some contacts report a decline in labor supply, both skilled and unskilled. However, the number of permanent positions available remains small, with clients still preferring to hire on a temporary basis. Downward price pressure continues, with some companies reducing both bill rates and wages in response. Most respondents express concern about rising costs, particularly for medical and worker's compensation insurance.
Contacts are positive about the remainder of 2003, anticipating modest demand growth during this period. But after a healthy July and August, some respondents say they will wait to see what September has in store before committing to the idea of an economic recovery.
Commercial Real Estate
Software and Information Technology Services
A few companies that were struggling to avoid layoffs in the first quarter are now beginning to hire; however, one contact reports a 10 percent layoff. Capital spending across the sector is still uneven, with some companies spending substantial amounts on technology and others freezing expenditures until the end of the year.
The outlook is beginning to change from flat to positive in the near term as contacts throughout the software and IT sector are buoyed by recent inquiries. Respondents report increased interest in custom applications and banking software.