The Beige Book – First District The Beige Book – First District

Economic activity expands at modest-to-moderate pace, but most responding manufacturers see declines Economic activity expands at modest-to-moderate pace, but most responding manufacturers see declines

June 5, 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, June 5, 2019

Summary of Economic Activity

Most First District business contacts said that activity continued to expand at a modest to moderate pace in recent weeks; by contrast, more than half of responding manufacturers cited sales declines from a year earlier. Commercial real estate markets were mostly steady in the region, with the Boston and Portland areas generally stronger than Providence and Hartford. Most residential real estate markets in the region experienced increases in sales and prices of both single-family homes and condominiums. Labor markets remained tight, but hiring difficulties were not said to be constraining operations (except for staffing firms). Prices were reportedly mostly steady. Consumer-facing sectors contacts cited a positive outlook and staffing firms were "guardedly optimistic," while most manufacturers downgraded their outlooks.

Employment and Wages

Contacted First District firms cited little hiring and continued upward pressure on wages. Retailers reported that while the labor market remained tight, especially for technical jobs, they were able to fill open positions. Most manufacturing contacts reported small changes in hiring. Respondents in the staffing industry mentioned low unemployment rates, local labor force demography, and limited applicant supply as "challenging" factors; within the limited applicant pool, they noted many underqualified applicants. Regarding wages, staffing contacts said that clients accepted higher bill rates to see qualified candidates who demanded higher pay rates.


Respondents reported minimal price pressure. Retailers indicated prices were generally steady, notwithstanding price declines for dairy products and eggs and price increases for pork and some consumer product categories. Branded pharmaceutical prices reportedly continued to rise, but at a more modest pace than the double-digit increases noted in previous years; this moderation was attributed to political attention being paid to drug prices. Manufacturing contacts cited tariffs as their main pricing issue, indicating that they were generally able to push price increases to customers. One reported that they added a surcharge to cover the tariff on goods from China, which customers accepted; once they found an alternative supplier, they removed the surcharge.

Retail and Tourism

Most First District retail contacts reported year-over-year comparable-store sales increases ranging from low- to mid-single-digit percentages; one retailer recorded a double-digit sales increase. Customer traffic was up, whether gauged by in-store traffic or online sales, and consumer sentiment remained strong. Two retailers noted that the delayed onset of warmer weather through much of April and May depressed sales of summer items like clothing and outdoor furnishings. Despite expressing some concern about higher tariffs, responding retailers did not expect much impact on their businesses. The outlook for the rest of 2019 is positive, though one contact noted that retailers have been forced to cut delivery fees and be very attentive to customer service to grow sales in a very competitive retail landscape.

A travel industry contact reported that domestic flights to Boston through March were up 1 percent from a year earlier, while international traffic was up 6.2 percent. Boston is expected to set a new record for the number of cruise-ship passengers in 2019. New hotel rooms continued to be added in the city. This respondent said the outlook for Boston tourism is very strong for the peak summer and fall travel seasons.

Manufacturing and Related Services

Reports from manufacturing contacts continued to be mixed. Of the nine contacted firms, five reported lower sales, one reported no change and only three reported higher sales versus the same period a year ago. Three negatives mentioned most often were China, tariffs, and the semiconductor cycle; the three are related but distinct issues according to contacts. For example, Chinese cellphone manufacturers are big consumers of semiconductors so trade actions against them (as with Huawei, for example) are a big negative for semiconductor-related firms. At the same time, semiconductor firms cited a flat period in the industry's business cycle. Another area of weakness is autos; a firm supplying capital equipment to the auto industry said investment was depressed because uncertainty about trade policy has delayed new model launches. Two contacts supplying Boeing said that the problems with the 737 MAX did not have a material effect on their business.

Responding manufacturers reported no revisions to capital expenditure plans. Among other things, contacts said they still needed to invest in automation. Although most contacts were still positive about the near term, many had negatively revised their outlooks.

Staffing Services

Two of five responding First District staffing firms struggled to find year-over-year revenue growth in the first quarter, with others reporting performance similar to 2018's first quarter; all reported revenues higher than in the fourth quarter. Demand from clients remained steady across industries, but the tight labor market constrained placements. Many firms cited transparency and educating clients about labor force composition as business strategies to avoid pushback and maintain profits.

Several respondents reported an increase in the length of temporary contracts and less demand for direct hires; they conjecture these changes reflect their clients' uncertain expectations stemming from the threat of a trade war with China. Most contacts noted that their outlook on the economy was guardedly optimistic.

Commercial Real Estate

Contacts reported only slight changes in commercial real estate market conditions in recent weeks. Leasing demand for industrial space remained very strong throughout much of the First District, except that Connecticut continued to see weaker demand for large-scale industrial and warehouse space compared with 6 to 12 months ago. Office leasing demand showed continued strength in the Boston and Portland areas but remained a bit soft in the Providence area and quite slow in greater Hartford. Accordingly, office rents faced further upward pressure in Boston and Portland and were flat elsewhere. A Portland contact noted that average rents for both office and industrial space increased roughly 10 percent from one year ago.

Construction activity held steady throughout the District—again with more robust activity in Portland and Boston than elsewhere. Contacts across the District noted that construction was restrained by high and rising costs, which were attributed to tariffs on steel and other materials and high labor costs due to the tight labor market. Investment sales demand was reportedly stable and the lending environment for commercial real estate remained favorable to borrowers.

The outlook was mixed across locations, in line with the strength of current conditions. Contacts across the District felt that rising construction costs presented a significant risk to activity moving forward, as did ongoing disputes over tariffs.

Residential Real Estate

Residential real estate markets in the First District displayed robust activity in recent weeks. For single family homes, sales increased over the year in Massachusetts, Boston, Maine, and Rhode Island, but decreased in New Hampshire. (Most areas reported year-over-year changes from April 2018 to April 2019, while Greater Boston reported statistics through March; no data were available for Vermont and Connecticut.) Single-family inventories decreased in all areas but Rhode Island. For condominiums, sales rose in all reporting areas except Rhode Island. Condo inventories decreased in Boston and New Hampshire, and increased moderately in Rhode Island, Maine, and Massachusetts. Of particular note, the number of condos for sale in Massachusetts increased for the fourth straight month, which was only the fourth time in the last three years.

Median sales prices increased or held flat in all reporting areas for both condos and single family homes, indicating that the seller's market environment persisted. According to the Rhode Island representative, "Homes are going under contract at a hectic pace and prices, though slowing a bit, are still on the rise." In general, residential contacts had a positive outlook, citing high demand and a favorable interest rate environment as reasons.


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