September 5, 2007
Federal Reserve Districts
|Skip to content
For most first District businesses contacted in the second half of August, recent results are similar to the last few reports--some up, some down--but they express increased uncertainty looking forward. Many contacts report that turmoil in financial markets is obscuring their near-term outlook. Price pressures are said to have eased somewhat, while selected professional and technical workers remain in short supply.
Inventory levels are mixed, while headcounts are generally stable (except in connection with store openings). Capital spending is also varied, with several retailers reporting slight increases in spending levels because of acquisitions, store openings, and systems upgrades. Contrary to recent periods, most contacts cite decreased vendor price pressure, with the exception of paper and some metals. One contact says excess supplies of lumber have pushed prices down. Selling prices are generally stable.
Respondents are cautious though optimistic in their outlook; most expressed concern with consumer confidence going forward. While one retailer expects fallout from the current turmoil in financial markets to be manageable, another asked "will the consumer step up to the plate and keep shopping and buying?"
Manufacturing and Related Services
Most manufacturers describe materials costs as remaining stable. Some note dips in prices of natural gas, metals, and other commodities in the past several weeks. Selling prices are mostly holding steady, with any increases characterized as selective or only partially successful.
Contacts generally are adjusting their U.S. headcounts only minimally (up or down), and average wage and salary increases are remaining in the range of 3 percent to 4 percent. There are scattered reports of difficulties finding qualified applicants for factory jobs, or of increased turnover among selected professionals. Manufacturers' domestic capital spending patterns vary widely but are holding to plan.
Some manufacturers continue to expect "more of the same" for the remainder of 2007, while others indicate they have become more cautious or more watchful for signs of weakness than before the recent turmoil in financial markets. For example, several contacts mention that their customers' spending is likely to be held down as a direct result of tighter lending standards or a general reluctance to make discretionary purchases.
Software and Information Technology Services
The majority of New England software and information technology firms are projecting revenues to continue growing at current rates. However, several contacts note that they are concerned about current financial market conditions and worry that this will "give customers pause."
Contacts express concern with the impact of financial volatility on the staffing industry. One fears that demand for labor in the financial sector will decline, while another attributes the already perceptible slowdown in demand for permanent hires to the instability, as companies are less willing to commit to permanent positions when the economy is unpredictable. Nonetheless, all contacts have a positive outlook, expecting stable growth through the end of the year.
Commercial Real Estate
Across the region, office rents have been either flat or increasing in recent months, with vacancy rates either flat or declining. Boston has seen some significant increases in rents for new, Class A office space and in some suburban properties that rent to the biotech sector. Vacancies hover around 10 percent or less downtown. In the rest of the region, rents and vacancies have been stable, with vacancies in the single digits in some regions of Connecticut and Rhode Island.
Respondents say upward pressure on rents should ease as sales prices soften from recent highs, but rents are mostly expected to hold steady. Some contacts see downside risks to rental demand, based on the possibility of economic slowdown. Some new inventory is expected in the region, but may take a year or more to come on line; in the meantime, vacancies are expected to decline slowly. The region's smaller markets expect less fallout from a commercial real estate downturn because fewer risky deals were made, while a Boston contact predicts a rise in defaults around 2009 as balloon payments come due.
Residential Real Estate
However, this moderate improvement was not shared throughout the region. A Connecticut contact reports decreases in sales volume and steady prices, while respondents in New Hampshire, Rhode Island, and Maine indicate markets remain soft. In New Hampshire, the median sales price dropped 1.5 percent year-over-year in July, as sales dropped about 12 percent. Single-family sales volume in Rhode Island declined 6.3 percent year-over-year in the second quarter, while the median price decreased 1.7 percent.
Contacts note that currently available data do not reflect the effects of the most recent developments in financial markets and express concern about potential fallout. Several contacts note that widespread news reports of tighter lending standards and increased foreclosures may drive away some potential home buyers.