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November 4, 1998
Federal Reserve Districts
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Economic conditions in the First District are increasingly mixed. Retail contacts generally report moderate to strong sales growth, but some sectors began to soften in September or October. Manufacturers are less upbeat; about half are still seeing increases in business, but a growing range of industries are weakening. Prices continue to be steady. Selected labor markets are still said to be tight, but both manufacturers and mutual fund firms are reducing hiring. Retailers are cutting back on capital spending. Firms say they are planning for 1999 with increasing caution.
Retail
Base employment is said to be holding steady and increasing only with store expansion. Most retailers hope to hire the normal range of workers for the holiday season, but expect to experience difficulty in recruiting. Many contacts report wage growth in the 5 to 8 percent range, an increase from earlier in the year, as they attempt to retain valued help in a tight labor market. Most respondents say prices and gross margins are holding steady. One exception is hotel room rates, which continue to rise; these contacts say they don't expect rates to continue rising in 1999. Only a few retail respondents plan to expand operations. Of these, two-thirds are expanding only to complete projects well under way, while re-evaluating projects planned for a year or more out. Looking forward, most retail contacts express optimism about the final quarter of 1998, but they are more pessimistic regarding 1999 and beyond. Half of the contacts say they expect a recession within the next 12 to 18 months, while the other half expect a slowdown in growth.
Manufacturing
Sales to Asia continue to be considerably lower than a year ago; exporters typically expect further weakness, although one firm is encouraged by a considerable decline in retail inventories in Asia. Some firms also mention steep declines in business in Russia and Brazil. Almost all manufacturers indicate that both their materials costs and their selling prices are either stable or falling. The few increases in selling prices are in the range of 1 to 3 percent. Paper prices are said to be falling at a double-digit rate and companies are getting bargains on items from Asia. Because of a reduced crop this year, cotton prices are expected to increase in coming months. Most respondents' capital spending plans are unchanged, although a few are either cutting or scrutinizing expenditures. About two-thirds of contacts have either cut employment recently or made downward adjustments in hours. Although layoffs have become more common in general, companies report continued difficulties hiring for telemarketing, information technology, and engineering positions (but some easing in the case of hardware engineers). A few companies located in areas with very low unemployment are having trouble filling production jobs. Average pay increases are running 3 to 6 percent. Most respondents express some degree of caution about sales or profits in 1999, especially in light of lingering problems in foreign nations and stock market volatility. A couple of representatives remarked that financing has become more costly or less available, although the majority do not cite the availability of bank credit as an additional impediment.
Residential Real Estate
Investment Management
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