January 17, 2001 Federal Reserve Districts First District - Boston

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Economic growth is slowing in New England, according to Beige Book contacts. Retailers say that sales during the holiday season were generally above year-earlier levels, but that they expanded less than last year. With exceptions, manufacturers report slower growth or declines in business from year-earlier. Selling prices are said to be mostly flat. Respondents indicate that they view 2001 with caution. Retail Retail contacts say that sales continue to grow, but at rates slower than last year. For the October through December period, sales increases at responding firms averaged a modest 3 percent from year-earlier. Sectors reporting better than predicted sales growth were apparel and tourism. Weaker than expected results were reported in art and architectural supplies, furniture, and the discount retail sector. Newspaper reports indicate that poor holiday sales growth in the discount sector led some large regional retailers to close down operations. Employment levels are mostly said to be holding steady. Labor shortages continue to be a problem, leading to some additional wage increases aimed at retaining critical help. Base wages are reported to be growing at a 4 to 6 percent rate. Retail contacts say they are not raising store prices and they see only sporadic increases in vendor prices. Profit margins are reported to be holding steady. Retailers have become more cautious, with most respondents indicating that they do not intend to add new stores in 2001. Contacts remain cautiously optimistic about consumer spending and their own sales in 2001; they say they expect a slowdown in economic growth during 2001, but not a recession. Manufacturing and Related Services A slight majority of First District manufacturing contacts indicate that recent sales or orders are up relative to a year earlier. However, compared to the previous Beige Book, a larger share of responding firms say business is down (rather than flat). Further, among respondents reporting growth, several indicate that business has slowed recently. Most manufacturers indicate that they are cautious about prospects in 2001, with some anticipating a weak first half. The most negative reports come from suppliers to the auto industry; in some cases, revenues are down at a double-digit rate from late 1999 or early 2000. Manufacturers of construction-related materials and equipment see some deterioration from prior trends; some believe the results reflect cold weather or construction labor shortages, while others interpret the results as evidence of a slowing economy. Makers of consumer products report, at most, modest revenue growth, and they are bracing for a deterioration as wholesale and retail business customers reduce their inventories or undergo consolidation. By contrast, contacts making products for the electric power industry, computer-related equipment, non-automotive transportation equipment, and medical equipment mostly report continued positive trends. Some firms have double-digit gains in sales or orders from a year ago for these products. Contacts make widespread mention of higher energy costs. For many, fuel and freight bills are way up from a year ago. The costs of some petrochemicals materials such as plastics also have risen, as have costs for materials produced using energy-intensive processes (e.g., glass). Selling prices are mostly flat or rising at low single-digit rates. Contacts continue to claim savings associated with aggressive purchasing programs, long-term contracts, or productivity enhancements. However, they are making more frequent references to a squeeze on profits associated with higher input costs, plans to raise selling prices in order to recoup higher costs, or a more cautious stance with respect to capital spending in order to contain costs. Contacts report some easing of labor market pressures either because their own labor requirements are falling or because workforce reductions at area firms (especially dot-coms) have augmented the available labor supply. Almost half the group mention cuts in temporary staffing or layoffs at their own firm. However, manufacturers continue to characterize markets for technically oriented professionals as tight, and most have seen no softening of overall wage and salary trends. Residential Real Estate Residential real estate markets in New England are fairly quiet. Activity has slowed in most areas, reflecting the usual seasonal pattern plus changing economic conditions. The stock market downturn and more generally perceived economic slowdown have generated uncertainty. Anticipated declines in interest rates are said to have caused potential buyers to delay house purchases. Although Massachusetts contacts report an increase in the number of sales in October and November compared to the same period last year, contacts in other states say that potential buyers are in a "wait and see" mode. Upper-end property sales are stronger than lower-end sales; in Massachusetts, the number of sales in the $500,000 and above range increased every quarter this year. Inventory is stable. Most contacts anticipate that activity will remain slow through the winter, but are hopeful that sales will pick up in the spring. Insurance Most contacts in the insurance industry report increases in sales in the last quarter of 2000. They indicate that reduced price competition has allowed them to raise some insurance rates to more profitable levels. On the down side, a couple of respondents mention that claims rose at the end of the year. Among the companies contacted, employment is generally flat. Two companies say they are moving some work to Florida or India where they face lower space and personnel costs. Although none of the contacted companies mention new hiring initiatives, they all say that the labor market for information technology workers is very tight. Two contacts are seeing positive results from retention programs and others note reduced labor competition from the dot-com sector. Generally, contacts are rather optimistic about 2001. They expect insurance sales to continue to increase although some express concern about the impact of stock market fluctuations on the profitability of their investment divisions. Return to top Summary New York