January 13, 2010
Federal Reserve Districts
|Skip to content
First District business contacts report that activity has picked up in recent months. For retailers and some advertising and consulting firms, the pickup has led to flat to positive year-over-year sales, while manufacturers' revenues mostly remain below year-earlier levels. A couple of commercial real estate contacts see very modest improvement while others remain downbeat; residential real estate sales (but not prices) are up substantially in response to the 2009 new homebuyers' tax credit. Prices are generally said to be stable, except for selected metals prices, which are reported to be rising. With some exceptions, First District business respondents say employment is level or up slightly; some firms intend to raise pay levels modestly in 2010. The outlook remains cautious.
Contacts continue to manage inventory levels cautiously, with several retailers reporting that levels have been intentionally decreased from prior year. Capital spending also remains carefully controlled, with some contacts cautiously increasing spending in ways they believe will enhance the company's long-term growth potential. Respondents are increasing headcount in line with new store openings and say hiring restrictions have been removed in order to take advantage of available talent. A few contacts indicate that merit increases have been restored. Selling prices are reportedly stable.
Manufacturing and Related Services
Manufacturers report that metals prices are rising, but that most other materials costs continue to hold steady. Some respondents are planning to raise prices for services or nondurable products. After a period marked by price erosion, a maker of building equipment is considering raising selling prices in response to higher metals costs; on the other hand, a furnishings manufacturer reports continued downward pressure on prices and no ability to pass along higher input costs. Most other contacts indicate that selling prices are holding steady.
Having reduced employment levels over the past year, most contacts are now holding domestic headcounts relatively steady or increasing them modestly. Some anticipate making further reductions in 2010, however. Manufacturers' budgets call for merit pay increases of under 3 percent in the coming year. Many firms expect to adjust the timing and/or magnitudes of pay and benefit adjustments in response to business developments.
Manufacturing respondents are planning for level or slightly higher capital spending in the New Year, mostly financed internally. Contacts indicate that they have adequate plant capacity to meet somewhat higher demand. Some firms are planning new investments in IT, factory reorganization, or product development. Several respondents mention the possibility of making acquisitions.
Manufacturers and related services providers are guardedly optimistic about business conditions over the coming 6 to 12 months. Contacts expect growth in revenues and profits, but they cite a variety of factors that are likely to constrain the extent of recovery or possibly even derail it.
Selected Business Services
Contacted companies continue to experience price pressures but are managing to hold prices steady or to negotiate supplier's prices in the fourth quarter. Contacted firms plan to raise prices by 3 percent to 10 percent in 2010. Hiring will increase in most firms to hold workforce stable or to increase headcounts to keep up with sharp demand increases. Base compensation will go up modestly--by 2 percent to 5 percent--in 2010. Bonuses in some firms are expected to be much higher next year than this.
Contacted advertising and consulting firms say they are either cautiously or very optimistic about next year's outlook. Projections of demand growth range from zero percent to 50 percent. Cost controls, increases in demand, and new sales strategies are expected to drive profitability up in 2010.
Commercial Real Estate
Two contacts currently express greater optimism concerning the outlook for 2010 than in the previous report, while others remain pessimistic or uncertain. The sources of optimism include anticipated demand for commercial space by the public sector, positive GDP growth forecasts, and stock-market-related improvements in investor sentiment. Sources of pessimism include weakness in retail sales, slow employment growth, and looming bank failures related to commercial real estate loans.
Residential Real Estate
Home prices did not show as much improvement as sales in November. Median prices declined modestly year-over-year in New Hampshire and Maine, while increasing by about 1 percent in Massachusetts and Rhode Island. However, as in recent months, median prices were probably affected by the concentration of sales among first-time homebuyers. Condo markets also saw large sales increases and moderate price declines in November.