WASHINGTON (MNI) – The following is the first part of the text of
the First District assessment in Wednesday’s Beige Book survey of
regional economic conditions:
FIRST DISTRICT – BOSTON
Economic activity continues to expand at a moderate pace in the
First District. Most contacted retailers, manufacturers, and consulting
and advertising firms report higher revenues in recent months than a
year earlier. Commercial real estate markets are mostly unchanged, while
residential contacts across the region cite rising sales and declining
prices. Except for a consulting firm unable to meet very strong demand
growth without aggressive hiring, responding firms are hiring modestly
or not at all; a few mentioned small layoffs. Retailers express concern
about what rising energy costs may do to consumers’ willingness to
spend, while manufacturing contacts acknowledge the increasing costs,
but say they are not a problem.
Retail and Tourism
Most First District retail contacts characterize year-to-date 2012
performance as strong, attributing this strength to mild winter weather
and improving consumer sentiment. For February, year-over-year
comparable-store sales increases ranged from low to high single digits,
with the exception of one retailer citing a 23 percent rise. Furniture
continues to sell well in the First District, as does apparel and other
household items. Paper-based products are expected to see 3 percent to 4
percent price increases. While respondents are optimistic that
performance will continue to be good, they remain cautious, noting that
gasoline price increases might damp consumer sentiment.
The travel and tourism sector in the First District continues to
expect a strong 2012, based on 5.6 percent annual growth in 2011, a
strong start to 2012, and analyst forecasts predicting high single-digit
to low double-digit increases over 2011. In January and February, hotel
revenues were up nearly 10 percent, reflecting improved occupancy rates.
Higher hotel occupancy has positive spillover effects for restaurants,
retail, and entertainment venues. Business travel is driving this
increase, as leisure travel is still subject to some consumer caution.
Echoing the retail contacts, tourism contacts say higher gas prices
could retard growth in leisure travel, but aggressive price discounting
might provide a counterweight.
Manufacturing and Related Services
None of the 10 First District manufacturing firms contacted this
round saw year-over-year sales declines in recent months, but
performance varied. A semiconductor machinery manufacturer which
generates most of its sales in Asia reports flat sales in the first two
months of 2012, an improvement over declining sales in the fourth
quarter of 2011. By contrast, an information technology equipment
provider cites 18 percent sales growth in 2011 and continued strong
growth in the first quarter of 2012. Geography matters, as firms with
large operations in Europe saw slower growth and some outright overseas
declines whereas firms more focused on the U.S. and Asia experienced
better results. A contact in the information technology sector argues
that the end of 2011 was strong because customers held back on spending
during the weak spring and summer period but then made sure to spend
that money before the year ended.
All of our contacts report that input costs and, in particular,
energy costs are up. However, none says rising costs are a problem and
all in this round say energy has little noticeable effect on their costs
or revenues. In general, respondents indicate they are hiring to keep up
with demand. Two firms undertook relatively small layoffs; one did so
because of weaker sales in the fourth quarter of 2012 and the other is
offsetting layoffs at one New England plant with increases elsewhere in
the region. Firms continue to report difficulty finding qualified
workers, especially in skilled manufacturing trades and engineering. One
contact, an electrical equipment manufacturer, is trying to re-orient
recruiting to hire young engineers, for example, and train them
in-house, rather than continuing to search for workers who already have
experience with the relevant technology.
None of the contacted firms has revised its outlook since our last
conversations earlier this year or in the closing months of 2011. Most
appear to expect U.S. economic growth around 2 percent in 2012 and
company sales growth in the low single digits. Contacts remain concerned
about the European economy and about political “gridlock” here. A few
contacts also expressed slight concern about prospects for growth in
China.
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** MNI Washington Bureau: 202-371-2121 **
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