The Beige Book - First District The Beige Book - First District

Economic activity continues to expand, though manufacturers cite a slowing pace Economic activity continues to expand, though manufacturers cite a slowing pace

April 17, 2019

The Beige Book

The Beige Book is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector.

Boston (First District) Beige Book Report, April 17, 2019

Summary of Economic Activity

Similar to the last report, most First District business contacts cited modest to moderate growth, with some slowing in manufacturing. Non-auto retailers reported moderate growth in sales; an automotive respondent said dealerships saw activity decline. Manufacturers again reported that revenues had either increased or stayed the same; most mentioned slowdowns in activity. Software and information technology services firms reported slow to moderate growth. Commercial real estate markets were mixed, with metro Boston remaining strong. Residential real estate markets saw home price increases and robust demand; several contacts said inventories were improving. Some manufacturers downgraded their outlooks, while retailers and software and IT services firms retained positive outlooks.

Employment and Wages

Hiring by manufacturers and retailers remained muted, while software and IT services firms expanded employment steadily. Wage increases were moderate. One retailer reported that merit pay increases for 2019 would average 3 percent. Other retail firms enhanced benefit policies to reward productivity gains and to retain current workers. Aside from offsetting attrition (notably of store associates and warehouse workers lured away by other employers), hiring plans were flat for most retail firms. An automotive contact cited a labor shortage of certified mechanics, which with computer technology are now highly skilled and well-paying jobs requiring technical expertise, but not a four-year college degree. No manufacturing contacts reported significant increases or reductions in staffing. A manufacturer of electrical components said that the tight labor market had led them to invest heavily in automation. No manufacturing contacts complained of wage pressures. Software and IT services contacts indicated that headcounts were growing steadily at a slow-to-moderate pace with no changes in the turnover rate. These contacts reported raising wages approximately 3 percent to 5 percent over last year.


Prices were generally stable or rose modestly. One retailer said that its spring selling prices were up by 1 percent to 2 percent from a year earlier. Manufacturing contacts said inflationary pressures were generally muted but some said that tariffs continued to drive up prices. Most respondents directly affected by tariffs said they were able to pass the costs on to buyers and, in some cases, they expected to retain the higher prices even if the tariffs were removed. One exception--a producer of frozen fish who has the fish processed in China--was unable to pass higher costs on to consumers.

Retail and Tourism

All retail contacts for this round, covering late February through early April, reported that same-store sales grew by low- to mid-single digits on a year-over-year basis, indicating that "consumers were in a buying mood." Capital spending plans were moderate, though one firm noted that it was deferring some discretionary maintenance because construction costs were up 20 percent. Although one respondent continues to be uncertain, the 2019 retail outlook was for generally positive growth.

An automotive industry contact reported that sales in 2019:Q1 were lower than 2018:Q4; the year-over-year comparison was also negative, as sales during the Presidents’ Day weekend were down compared to last year’s Presidents’ weekend. Dealers were reportedly a bit nervous about the outlook, citing recent threats to raise tariffs on automobiles.

As of the end of February, domestic air travel to Boston was up 3.6 percent year-over-year, while international traffic was up 10.1 percent year-over-year.

Manufacturing and Related Services

The news from manufacturing contacts was again mixed. None of the nine respondents reported falling sales but many reported no growth or substantial slowdowns. A manufacturer of filtration materials said that actual 2018 sales growth was 6.5 percent and they expected 3 percent to 5 percent for 2019, both figures down markedly from their expectations last August. A maker of mechanical components for machinery saw 3.5 percent growth in 2018 but expects 1.5 growth for 2019. A manufacturer of furniture said demand had risen, but only after he cut prices. A manufacturer of cardboard boxes said that growth was flat after many quarters of very strong growth. A toy maker said the failure of a major toy retailer in 2018 continued to have dramatic negative effects this year. Only one contact reported significant revisions to capital expenditure plans, saying they were cutting them by 15 percent to conserve cash.

The outlook was unchanged or down; several contacts downgraded their growth expectations substantially. Only one, however, noted the possibility of a recession.

Software and Information Technology Services

Software and IT firms reported slow-to-moderate growth in the first quarter. The majority of contacts noted positive revenue increases in the low- to mid-single digits, with demand especially strong for newer, more innovative product lines. Two contacts mentioned that their first-quarter growth exceeded expectations, which they attributed to a favorable demand environment as well as to recent restructuring efforts aimed at improving efficiency. Two technology contacts mentioned seeing evidence of unexpectedly high demand for office space in metro Boston, including one who received an unsolicited offer of twice the original purchase price for a building in a major tech corridor. Overall, contacts were largely more optimistic than last quarter and anticipated positive growth throughout 2019.

Commercial Real Estate

Commercial real estate contacts in the First District offered mixed reports. In Hartford the office leasing market was described as sluggish, with activity limited to short-term renewals. Providence has seen rising vacancies in the class A office market recently, which is expected to blunt or halt the growth of office rents there. The Boston office market was characterized as historically strong, with robust leasing activity dominated by the life sciences and high-tech sectors. Very low vacancy rates in Boston have boosted speculative office construction in recent months, but significant amounts of new space will not come on line for several years. Construction activity in Connecticut was still largely limited to the multifamily housing market. Demand for industrial property, for lease and for purchase, remained very strong in greater Boston and continued to moderate in Connecticut. In Rhode Island, industrial property values and rents increased noticeably in the past year amid strong demand and tight supply, although the volume of sales transactions was restricted by low inventories. Investment sales markets were described as stable around the region, and demand for commercial real estate mortgages remained high in greater Boston and southern New Hampshire.

The outlook remained pessimistic for Connecticut, where a contact expected conditions to remain flat or slow further in 2019. The outlook for Providence was for stable, modest activity in the near-term and a possible slowdown in 2020. Boston contacts were cautiously optimistic that the good times would continue, although one expressed increasing nervousness about the potential vulnerability of the commercial real estate market to a bust in the high-tech sector.

Residential Real Estate

Residential real estate markets in the First District displayed signs of improvement and robust demand in February. (Most areas reported year-over-year changes from February 2018 to February 2019, Vermont reported through January 2019, and Connecticut data continued to be unavailable.) For single family homes, closed sales increased substantially over the year in Massachusetts, Boston, and New Hampshire, while decreasing a small amount in Maine and moderately in Rhode Island. Single-family median sales prices were up in all reporting areas. For condos, sales rose in Rhode Island, Massachusetts, and Boston but declined in New Hampshire. Median condo sales prices decreased in Rhode Island, Massachusetts, and Boston while increasing in New Hampshire. Vermont, reporting on single family homes and condos combined, cited a drop in sales and an increase in the median sales price.

Most First District respondents said the recent improvement in market conditions included pick-ups in pending sales and/or inventories. Contacts expressed generally positive outlooks tempered with caution.

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