WASHINGTON (MNI) – The following is the text of the Beige Book’s
summary of First District economic activity, published Wednesday:
FIRST DISTRICT – BOSTON
Business contacts in the First District continue to report mixed
results. Some manufacturers cite slowing demand while others continue to
enjoy strong sales, retail activity is mostly flat, tourism is up,
staffing and software and IT services firms note continued growth, and
real estate markets remain sluggish. Respondents say input cost
pressures have eased somewhat since the last report. Firms are doing
little hiring. Contacts in all sectors note that the outlook is
increasingly uncertain.
Retail and Tourism
Year to date through early August, contacted First District
retailers report generally flat sales compared to a year earlier.
Reports range from down 5 percent to up almost 4 percent. Consumers are
conservative in the purchases they are making and, in particular, are
avoiding big-ticket items. Sales of furniture and office supplies have
been sluggish, while apparel and home improvement categories have
performed a bit better. One contact saw a pronounced downward sales
trend in recent weeks that he attributes to consumer concerns about the
debt ceiling debate, stock market gyrations, ongoing high unemployment,
and continuing unease about the U.S. economys medium-term prospects.
Some contacts are hiring, but most are cautious about adding to head
count and one may have layoffs after the holidays. Retailers say that
commodity price increases have moderated. Inventory levels are being
positioned for an uncertain economic environment. All respondents voice
concern that the economic outlook is sluggish for the foreseeable
future; they are scaling back capital spending plans for 2012.
Travel and tourism in the region continued a strong upward trend
through the second quarter that began a year earlier; as of June 2011
year-to-date activity in the hotel and visitor sector was up 7 percent
from 2010. However, since mid-July, activity has softened and slowed,
leading to an increase in promotional offers to shore up hotel bookings.
The tourism industry has scaled back its 2011 forecast and now thinks
that a 5 percent increase would represent a great year. The revised
forecast reflects both lower consumer confidence and potential
reductions in business travel based on an uncertain economic outlook for
the next six months.
Manufacturing and Related Services
Manufacturing contacts report relatively mixed business conditions,
especially compared to the widespread favorable reports earlier this
year. Some firms cite flatter and/or slower revenue growth in the
current quarter compared to the first half of the year, while others say
sales growth continues to be relatively robust. Semiconductor-related
manufacturers in particular note declines in demand, although they
attribute it to standard demand cycles for their products, given the
surge in purchasing they saw in late 2010 and early 2011. A diversified
manufacturer and a company in the aerospace industry also report
somewhat softening demand, which they attribute to a possible end to the
post-recession sales bounce-back as well as increased economic
uncertainty making some customers less willing to stockpile inventory. A
number of firms also note a slowdown in European demand for their
products. By contrast, sales growth at pharmaceutical companies remains
steady, and demand at various industrial supply manufacturers continues
to be strong. Contacts at these industrial products firms note that they
have little lead time between orders and sales and thus they would know
very quickly if demand were slowing. Despite continued favorable
conditions at some companies, nearly all manufacturing contacts voice
concern regarding the current state of economic uncertainty and more
than one commented that the country is “talking itself into a
recession.” Some respondents continue to postpone hiring and/or
investment to keep costs low while others report having contingency
plans in place should demand turn down noticeably.
Employment remains steady at the vast majority of contacted
manufacturers. One exception is an industrial products manufacturer with
headcount up 9 percent year-to-date who plans to continue to hire as
long as demand for their products remains strong. By contrast, a
semiconductor firm has eliminated some of its temporary workforce
because demand for its products is off. A small number of manufacturers
report continued difficulty finding workers for highly skilled
positions.
Fewer manufacturers report input price pressures and/or supply
shortages than in recent rounds, although the costs of rare earth metals
continue to pose input price pressure for some firms. One firm notes
that anticipated supply disruptions from the earthquake in Japan never
materialized. Most manufacturers reporting higher raw material costs
continue to be able to pass the price increases on to their customers
with little resistance. A semiconductor firm, however, notes that
economic conditions limit its ability to pass along cost increases.
Healthcare costs continue to be a concern for contacted manufacturers,
although nearly all report providing merit pay increases to their
employees this year.
Responding manufacturers say capital spending remains more or less
on plan, with the majority of capital spending increases relative to
last year going to construction and/or updating of facilities. Most
contacted firms report having excellent cash positions and being willing
to invest should a good opportunity arise. Uncertainty surrounding the
economic climate, however, continues to limit their willingness to
invest and hire; they are waiting to see what happens with the economy
before noticeably changing their current operating strategy.
Software and Information Technology Services
New England software and information technology contacts report
that the upward trends of 2010 and early 2011 continued through the end
of the second quarter. Year-over-year revenue increases, ranging from 4
percent to 30 percent, were driven by notable increases in both software
license sales and recurring service revenues. Reports on activity since
July are mixed, however, with some contacts experiencing downticks and
others posting larger-than-expected increases. Headcounts continue to
rise in line with revenue growth, although many contacts report
increasing difficulty in finding qualified software engineers,
programmers, and sales personnel. As a result, some have bolstered their
recruitment efforts and one contact has added jobs overseas. Wages are
steady or up slightly, with annual merit increases generally in the 3
percent to 5 percent range. Selling prices have been left unchanged as a
result of a competitive market environment. The outlook among New
England software and IT services respondents is not appreciably
different from that of 3 months ago, with most expecting growth in late
2011 and early 2012 to be in the 10 percent to 20 percent range.
Staffing Services
Nearly all New England staffing contacts report upticks in business
volume through the end of second quarter and into the third; however,
many respondents lament that overall activity remains below
expectations. Revenues are flat to increasing year-over-year, with
increases in the range of 5 percent to 25 percent. Labor demand
continues to strengthen, albeit modestly, with notable improvements in
the manufacturing and information technology sectors. Demand for
permanent and temporary-to-permanent hiring continues to grow; indeed,
two contacts report that permanent placements are up more than 20
percent relative to last year. Notwithstanding stronger demand, jobs
remain difficult to fill as clients remain fastidious in their candidate
expectations. One contact notes that jobs that used to take just a few
days to fill continue to take weeks. Supply of high-end labor remains
tight in the region, but there has been no significant change since May.
Bill rates and pay rates are steady. Looking forward, New England
staffing contacts are generally less upbeat than they were three and six
months ago, with many expecting to “move sideways” into 2012.
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** Market News International Washington Bureau: 202-371-2121 **
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