July 27, 2005
Federal Reserve Districts
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The First District economy continues to expand, with the exception of New England-based retailers. Contacted retailers say sales are flat or down compared with a year ago. By contrast, most responding manufacturers are enjoying year-over-year revenue growth, as are advertising and consulting firms in the region. Both retailers and manufacturers report cost increases that they are unable to pass along fully to their customers. New England's residential real estate markets are still going strong, although the pace of activity and rate of increase in home prices in Massachusetts are moving toward normal from "hot," and region-wide inventories of homes for sale are rising somewhat toward more normal levels.
Inventory levels remain flat or have decreased according to most respondents. One exception is the apparel retailer who has increased inventories in order to shift to more-salable merchandise. Several retail contacts note cost increases for utilities, steel-based items, and paper; they remain hesitant to pass these increases on to customers. Employment levels are mostly steady, with increases occurring only in connection with the opening of new stores. Respondents also report increased capital spending associated with these new store openings, as well as for improvements in distribution and technology.
Most contacted retailers are less optimistic than in previous months, and remain cautious in their outlook. Many hope that sales will at least remain flat compared with a year ago. Respondents also express uncertainty and caution about consumer demand, rising healthcare costs, and geopolitical instability.
Manufacturing and Related Services
Prices for some materials and services continue to increase. Respondents cite cost pressures from freight and transport, energy, and petrochemicals and other synthetic products in particular. In general, manufacturers cannot fully pass along these higher costs to their customers. Some have managed to offset margin pressures by introducing greater efficiencies in purchasing and production.
Companies are mostly keeping their domestic headcounts steady. A few are laying-off employees or shortening the factory workweek. Hiring generally is restricted to sales and marketing and high-end technical positions. Labor markets typically are tight for these types of positions, but contacts do not complain of hiring delays except for positions requiring government security clearance. Wage and salary increases are mostly in the range of 3 to 3.5 percent. Most companies are increasing their capital spending, but they describe their added investments as modest or careful.
Respondents tend to characterize the revenue outlook in terms such as "satisfactory," "decent," or "on plan." Companies in information-related businesses stress that they expect to grow more slowly than in the 1990s. Manufacturers say they intend to remain focused on cost containment, especially given their limited ability to pass on high oil prices and competition from producers in low-cost locations such as China.
Selected Business Services
Residential Real Estate