January 12, 2011
Federal Reserve Districts
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Economic conditions continue to improve in the First District in the waning months of 2010. Most contacted retailers report year-over-year sales increases, manufacturers generally continue to see expansion, and advertising and consulting firms cite relatively strong growth. Respondents in these three sectors indicate employment is stable to rising, with more of the same planned for 2011. Commercial real estate markets are said to be stable, while residential real estate continues in the doldrums. Selected commodities are causing some price pressures, but contacts report only modest pass-through into sales prices to date. The outlook for 2011 is generally positive, albeit moderate.
Contacts report mixed inventory levels in comparison to plan. As for prices, retailers note cost increases for commodities, including cotton, rubber, and nuts. Several respondents observe price pressure in the industry, but have yet to experience it themselves. Some contacts have worked to lock in pricing through vendor contracts; a couple say that vendors may be absorbing price increases or working to cover increases through product reengineering to keep their selling prices steady. Retailers say that price increases passed on to consumers, if any, will be selective. Headcounts continue to increase in line with new store openings, although a few firms are taking measures to reduce redundancy and consolidate headcount to gain other efficiencies. One respondent is concerned that uncertain potential employer costs associated with healthcare reform may affect hiring. Capital spending is mixed, with several retailers reducing capital spending now that one-time expansion projects have been completed. Outlooks are generally cautiously optimistic, with most contacts forecasting a slow and steady improvement in 2011.
Manufacturing and Related Services
A number of contacted firms continue to try to reduce or limit their inventories to maintain lean operations. By contrast, a few other firms report trying to increase their inventories somewhat either to meet higher demand or to try to offset continued supply constraints or disruptions. Plastics are one intermediate input that remains difficult to obtain, and a semi-conductor manufacturer reports that components necessary for its production process remain in short supply. These supply constraints have yet to translate into higher input or output prices for the affected firms. Increases in commodity prices are the main source of price pressure amongst responding firms; the prices of precious metals continue to rise as do the prices of grains and sugars. The manufacturers affected by these higher input prices have tried to pass along some or all of their increased costs to consumers in the fourth quarter or they plan price increases in early 2011, but they are not certain the increases will stick. Overall, selling prices remain relatively stable at the majority of contacted manufacturers.
Manufacturers continue to report stable to slightly increasing employment. The firms that are hiring tend to be increasing their headcount in skilled positions and/or in production workers to meet increased demand; none are planning substantial increases. Firms' capital expenditures are little changed from previous reports. Most contacted companies anticipate their capital spending in 2011 will be roughly in line with 2010. Those firms who have increased capital expenditures or plan to do so are directing the spending toward IT upgrades or increased plant capacity.
Manufacturing respondents have mixed, but generally positive outlooks for 2011. One firm reports being "very optimistic" about next year, while most are "cautiously optimistic." In comparison, the firm that has been struggling recently said the outlook for the next three to six months is "lackluster." Many contacted firms remain concerned about their health care costs going forward, and a few expect that the macroeconomic uncertainty will continue to weigh on their sales growth.
Selected Business Services
Most contacts are highly optimistic about their near-term performance and throughout 2011, mostly based on the increased volume of deals already secured and growing inquiries from clients. Expectations about general economic recovery in 2011 contribute to these projections as well. They expect annual growth in revenue ranging from 5 percent to 15 percent.
Commercial Real Estate
The outlook ranges from quite cautious to solidly optimistic. Boston and Hartford contacts expect slow growth and only limited absorption in 2011. Prospects for absorption in 2011 were more robust in Providence and Portland, and a Boston banking contact expects very strong loan demand for commercial properties throughout 2011. No contacts are predicting a "double-dip" in the commercial real estate market (nor for the economy as a whole). Nonetheless, a few are concerned that commercial foreclosures could increase in 2011, putting downward pressure on property values.
Residential Real Estate
Contacts anticipate a continuation of current sluggish activity levels into 2011, with fewer swings than in 2010. Some respondents express concern about possible tax reforms restricting the mortgage interest deduction.