March 8, 2000
Federal Reserve Districts
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Economic activity continues to expand in the First District. Retailers report strong sales growth and little price inflation. Most manufacturers are also seeing their business grow and indicate they are not raising prices. Labor markets remain tight. Most companies say base wages are rising at a 3 to 5 percent pace, although increasing numbers say they are raising wages more than this. In addition, temp firms report wages are up 5 to 10 percent from a year earlier. Firms continue to implement technologies or strategies that economize on labor and other inputs.
Permanent employment is said to be holding steady. Most retailers indicate that base wages are increasing at a 3 to 5 percent rate, although overall compensation is increasing faster because of performance-based incentives. However, contacts in faster-growing sectors are raising wages at a 5 to 10 percent pace in order to attract scarce labor. Retailers continue to report little evidence of inflation except in the fast-growing tourist sector. Contacts say that profit margins are increasing slightly as technological improvements yield cost efficiencies.
Retailers plan some modest capital expansions over the next six months; these expansion plans have changed little over the past year. Most contacts say that the economy is currently very strong and they are optimistic concerning sales growth prospects for the first half of 2000. However, looking toward the second half of the year, they expect to see a moderation in the rate of growth in consumer spending, reflecting the braking action of interest rate hikes and oil price increases.
Manufacturing and Related Services
Manufacturers cite rising costs for oil and gasoline, paper, copper, and furniture-grade lumber but reductions for electronic components. Most selling prices remain flat, and many contacts cite increased operating efficiencies or improved cost management techniques as being helpful in avoiding the need to raise prices. However, prices reportedly are rising somewhat for paper goods, consumer products, and industrial machinery. Prices of aircraft equipment are falling.
One-third of the respondents are reducing their head counts substantially as part of restructuring efforts. Employment changes at most other companies are fairly small. The majority of respondents indicate that average pay raises remain in the range of 3 to 5 percent, but a growing fraction report higher increases. Contacts indicate that tight labor markets have raised workloads for existing employees and increased the need to reward key personnel. Finance, accounting, information technology, research and development, and sales and service openings reportedly are the hardest to fill.
All contacts expect business either to be good or to show improvement this year. However, many point to at least some degree of uncertainty arising from their own restructuring efforts or those of competitors or customers.
Commercial Real Estate
The rest of New England is mixed. Hartford has seen some recovery, but its office vacancy rate is still one of the highest in the country, at around 20 percent. The retail and industrial sectors in Hartford have vacancy rates of 7.5 and 14 percent, respectively, also worse than the national averages. Rhode Island has experienced some restructuring in manufacturing and contacts anticipate an increase in industrial vacancy rates there. The office market in Rhode Island is doing well, however.
Most insurance companies do not seem to be experiencing general labor market pressures. The market for some specialties, particularly information technology (IT) workers, remains tight. However, contacts suggest that the degree of tightness in the IT labor market varies considerably by geographic area within New England.