September 16, 1998
Federal Reserve Districts
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Business contacts in the First District continue to report growth. Retailers and temporary employment firms are the most upbeat, although most respondents in manufacturing and the insurance industry also say their revenues are expanding. Prices are generally level or declining. Labor markets in New England remain very tight, and base wage increases range from 2 to 6 percent. Respondents across industries express increased uncertainty about the outlook for 1999.
Employment is reported to be holding steady on a same-store basis. Retailers say that labor markets are very tight: Those hiring for replacement are seeing a decline in worker quality; those that are expanding find worker shortages impinging on their expansion plans; general retailers expect this winter's seasonal hiring to be very difficult. Wages are reported to be increasing at a 3 to 6 percent rate.
Most respondents report that competitive pressures are continuing to keep price inflation in check. Consumer prices are said to be either holding steady or declining slightly, while some purchase prices -- for lumber, apparel, and consumer appliances -- are reported to be declining significantly. Most contacts say profit margins are holding steady.
Almost all manufacturers indicate that both their materials costs and their selling prices are stable or falling. The few increases in selling prices are in the range of 2 to 4 percent.
Most contacts are making only modest changes in employment levels, but over half indicate difficulties filling some positions. These occupations include information technology, engineering, finance, equipment servicing, sales, and toolmaking. Overall pay is said to be rising 2 to 5 percent, but some contacts mention double-digit increases for certain categories. One-third of the manufacturers indicate that overall pay raises are now higher than before or will be higher in 1999 in order to stem turnover. Almost one-half of the respondents intend to reduce inventories. However, most plan sizable investments in fixed capital, primarily to increase operating efficiency or to develop capacity for new products.
Temporary Employment Firms
Outlooks for the next twelve months are mixed. Some respondents are optimistic, predicting continued solid performance. Others are more cautious, anticipating a softening of the regional economy toward the beginning of next year.
Nonbank Financial Services