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Federal Reserve Districts

First District--Boston

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Reports are varied from business contacts in the First District. Both retailers and manufacturers cite mixed results in recent months and cautious to positive outlooks. Advertising and consulting firms report generally strong demand but signs of increasing client caution. Residential real estate markets in the region are improving, with some increases in sales volume and declines in inventory. Most business contacts are hiring for replacement; skilled positions remain difficult to fill. Selected costs are said to be rising; some retailers and manufacturers indicate they are raising prices modestly.


Retail respondents in the First District cite mixed sales results in March and early April. Same-store sales results ranged from low double-digit decreases to single-digit increases year-over-year.

A discount clothing retailer reports that "business has been fine," with same-store sales up 5 percent year-to-date. Sales of children's clothing and accessories have been strong, while men's clothes are weaker. An office-supply retailer notes that same-store sales were up 2 percent to 3 percent, but were somewhat more volatile than previously. Sales of core products, such as ink and paper, were a little slower, and sales of telephones and laptops were more variable; in addition, the launch of Microsoft Vista was significantly weaker than expected. A restaurant chain reports that same-store sales are up about 1 percent, but indicates that the rise reflects increases in price, not volume. Another restaurant chain reports that sales are "on the soft side" and down close to 4 percent year-over-year. A discount furniture retailer observes that although their sales are down a few percentage points, they are doing better than the industry; sales of dining and bedding products are strong, but the company is looking to enhance sales of upholstered furniture. A lumber company reports that "things have just dried up," as sales have decreased by mid-teens percentages from last year.

Inventory levels are mostly in line with expectations. Several respondents report cost increases for dairy, beef, liquid sugar, and paper. The price of lumber is at a multi-year low. Some retailers say they are passing along small price increases to their customers. Employment has been mostly steady, with hiring occurring for replacement or for new store openings. One respondent, however, has reduced staff by more than 10 percent because of declining sales. Capital spending plans are mixed.

Overall, retail respondents are cautious in their outlook. Several contacts express concern about consumer confidence. As one contact describes it, "we have less visibility into where the economy is going." Respondents also mention concerns with rising gas prices and geopolitical tensions.

Manufacturing and Related Services

Manufacturers and related services providers headquartered in the First District report mixed results for 2007 to date. The majority indicate that sales continue to increase, and some are getting a boost as a result of strengthening demand on the part of U.S. refinery and various European customers. However, sales of residential plumbing and heating equipment and construction products are running below year-earlier levels. Manufacturers also report slowdowns in demand for various other products, including selected consumer goods and some automotive supplies.

Manufacturers indicate that overall materials and energy costs are stable or increasing less than in 2006. However, they continue to express concern about rising costs for metals such as steel, copper, and nickel. Some also cite inflationary pressures or uncertainty associated with oil and natural gas pricing. Changes in selling prices vary widely. Many firms are putting through average increases of 2 percent to 5 percent in the first half of 2007. Others say prices remain unchanged, while makers of IT equipment and semiconductors indicate that prices continue to fall.

Most respondents expect their U.S. headcounts to remain fairly steady in 2007, with average wage and salary increases remaining in the range of 3 to 4 percent. Manufacturers mention that they are facing challenges in staffing domestic positions in finance, accounting, IT, science, engineering, and machining, particularly at New England locations.

The majority of contacts expect their capital spending to increase in 2007. Despite an ongoing shift toward overseas production, many manufacturers are also boosting investments at domestic facilities in order to increase capacity, introduce new products, or improve efficiency.

Manufacturers express a wide range of views concerning their business outlook for 2007. Some indicate that they are cautious, tentative, or even "nervous" as a result of the U.S. housing market, commodity prices, and geopolitical uncertainties. Others cite reasons for being somewhat or very positive about their company's prospects.

Selected Business Services

First District advertising and management consultants report that demand continues to be strong for their products and services, with the majority seeing double-digit revenue growth in the most recent quarter. While their pipelines are flat or up relative to a year ago, a few contacts note that the composition has changed; the number of large projects has fallen and it appears companies are delaying the decision to commit to projects.

Firms have put through selective price increases ranging between 3 percent and 10 percent. Input costs are relatively stable, although a few contacts continue to note increased travel costs. Headcounts are growing in response to demand, but at a slightly slower rate than revenues. Most respondents plan to increase wages by between 4 percent and 8 percent in 2007.

New England business services respondents have a positive outlook, with most expecting the rate of revenue growth in the first half of 2007 to be flat or slightly higher than in 2006.

Residential Real Estate

Across New England, the volume of residential sales shows signs of increasing. In Massachusetts, sales volume increased year-on-year in both January and February. Single-family home sales reported from Massachusetts multiple listing services increased 1.2 percent in February from a year earlier after a double-digit year-on-year increase in January. Contacts in New Hampshire and Maine also cite signs of improved sales activity. Increased sales volume and lower overall inventory has led to improved supply conditions in regional markets. In Massachusetts, the total number of listings decreased 17 percent from February 2006 to February 2007. At the current pace of sales, there is around 12.3 months of supply in the Massachusetts market, down from over 15 months in February 2006. Market conditions, however, continue to favor buyers across the region, as supply exceeds what contacts feel is balanced in most locations.

Though sales volume is increasing, prices remain below their previous year levels. In Massachusetts, single family home prices were down in February from the previous year's levels by around 4 percent while condominium prices were down 1.8 percent. Contacts in Connecticut, Maine, and New Hampshire also report year-on-year price declines.

Overall, contacts are encouraged by recent changes, suggesting that New England residential markets are returning to what they term more normal conditions.

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Last update: April 25, 2007