November 3, 1999
Federal Reserve Districts
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Business activity continues to expand at a vigorous pace in the First District. Retail sales are expanding solidly and most manufacturing contacts' revenues are up. Retailers, with one exception, say their vendor and selling prices are steady or even declining, while half the manufacturing respondents report rising materials costs. Labor costs may be accelerating somewhat, with manufacturers offering attractive recruitment packages and slightly higher wage increases while retailers engage in more raiding. In addition, manufacturers express concern about sizable projected increases in the cost of medical benefits.
Employment is said to be holding steady. Most retail contacts continue to say that wages are growing at a 3 to 5 percent pace. All respondents indicate that the labor market is very tight and some are having difficulty finding temporary help for the Christmas season. In contrast, contacts are having no difficulty hiring or replacing permanent help, although raiding is reported to be more common. Most retail respondents say that consumer goods price inflation is non-existent and that vendor prices are either holding steady or declining. By exception, hardware prices are increasing because of manufacturers' price increases. Gross margins are said to be holding steady.
Retailers are planning modest capital expansions for next year. Most contacts say that economic fundamentals are strong and hence they expect steady economic growth to continue for the next six months. Respondents in the interest-rate-sensitive construction supply business report that building contractors indicate they have orders booked for the next six to nine months.
Manufacturing and Related Services
One-half of the manufacturers contacted indicate that materials costs are rising. The most commonly mentioned increases are for fuels, plastics, and petrochemicals; copper and aluminum; and paper and cardboard. Selling prices are said to be mostly flat. However, some companies are raising their prices in response to higher costs for materials and labor, while manufacturers of automotive and aircraft equipment report that their customers are continuing to press for price reductions.
Most manufacturing contacts report steady or rising headcounts, although some large firms have instituted layoffs. Average pay increases are said to be in the range of 3 to 6 percent. One-quarter of the respondents report that production worker turnover is their most serious problem; they are offering a variety of bonuses, compensation adjustments, and flexible work schedules to attract and retain labor. Many companies expect double-digit increases in health care premiums for next year; some express concern about the need to restructure benefits.
Most manufacturers expect their revenues to increase in 2000. Many cite evidence of turnaround in Asia as a contributing factor. By contrast, sentiments regarding the U.S. economy have become more mixed and some contacts have become more proactive with respect to managing their outlays. The century date change appears to be having only a minimal effect on most manufacturers' projections.
Residential Real Estate