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

Economic activity expands at modest pace, tariffs and trade policy create uncertainty Economic activity expands at modest pace, tariffs and trade policy create uncertainty

July 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, July 17, 2019

Summary of Economic Activity

Economic activity expanded at a modest rate in the First District at the end of the second quarter of 2019. Retailers reported lower comparable store sales, which they attributed to temporary factors including unusually strong activity in the same period last year and inclement weather. Restaurants reported higher sales. Manufacturing firms reported slower growth. Contacts attributed slower growth to tariffs, which drove up costs. In addition, trade policy uncertainty reduced capital expenditures. Software and IT services firms reported mixed growth. Commercial and residential real estate markets enjoyed increased prices and flows of transactions in most markets. Employment growth was mixed: some manufacturing firms laid off workers while other contacts reported difficulty finding workers. Tariffs drove price increases at some firms. Wage and pricing pressure was otherwise modest. Outlooks were positive with some downward revision.

Employment and Wages

Contacts reported that wage pressure remained modest. Some firms reduced hiring or laid off workers, but those hiring continued to report a very tight labor market. Manufacturing firms directly affected by tariffs were among the firms with reduced demand for labor. Retailers and restaurants reported that finding workers remained a problem but increased numbers of visas should reduce seasonal labor shortages in tourist areas.


Firms facing increased costs due to tariffs said that they had little trouble passing them on. Otherwise contacts did not report any unusual price pressure either on the supply or demand side. Retailers said that intense competition limited price increases. Menu prices were up by about 3 percent at restaurants, relative to a year-earlier, reflecting higher labor and other operating costs.

Retail and Tourism

Retail contacts consulted for this round reported that on a year-over-year basis, overall comparable store sales for late May through June were down by 5 to 8 percent. The explanation for these results varied: one firm cited an unfavorable comparison to a record high increase that was set last year, while other sources attributed the lower-than-expected results to an unseasonably cold and rainy spring in the Northeast having an adverse effect on sales and tourist activity. While these lackluster 2019:Q2 results have raised some concerns, the prevailing expectation is that this trend will prove to be temporary. All contacts said filling open positions is hard.

Restaurants sales in Massachusetts were up six percent.

Tourist activity on Cape Cod was adversely affected by dismal weather, including 20 days of rain in June. More visas for temporary foreign workers this year mean that the Cape Cod labor shortage should be less than in 2018. The travel industry expects that growth in 2019 will be good.

Manufacturing and Related Services

Reports from our contacts continued to be mixed. The big story this cycle is trade policy, which six of seven contacts discussed in detail. Contacts attributed higher costs, reduced demand and higher uncertainty to trade policy. Contacts said it was typically hard or impossible to divert to non-Chinese suppliers. For firms that produce components, the costs of "qualifying" new suppliers usually exceed the benefits. Indirect costs of the tariffs were also significant. For example, one contact complained about having to hire consultants to change computer systems to track the cost of tariffs.

Contacts said the US tariffs and foreign retaliation had weakened demand for their products. Firms that supply electronic components to capital goods manufacturers said investment demand had slowed because firms were delaying capital expenditure plans. One contact said the brief threat to impose 5 percent tariffs on Mexican goods significantly increased uncertainty because it meant that even with an agreement in place, new tariffs were still possible. In general, contacts said they were able to pass the tariff costs onto their customers.

One contact reported that previous problems finding trucking capacity had ebbed.

Five of seven contacts reported flat or reduced employment. A frozen fish manufacturer said it was unable to find workers. A manufacturer of electronic components said it had laid people off as a result of the tariffs, with headcount declining by about 10 percent. For example, the firm had moved an assembly line from the U.S. to Germany because most of the components in the product came from China and making the product in Germany allowed them to avoid the tariffs.

Three of our contacts reported downward revisions in capital expenditure plans. In general, firms did not cancel but delayed plans in order to get more clarity about tariffs. One contact reported increased capital expenditure to duplicate production currently done in China.

A majority of contacts said they had negatively revised their outlooks. The major reason was trade policy.

Software and Information Technology Services

Software and IT firms reported mixed outcomes from this past quarter. Half our contacts reported demand and revenue growth that exceeded expectations, attributable to improving business efficiency, newer cloud-based or Internet of Things product lines, and introduction of month-to-month subscription pricing options. Other contacts reported either no change in demand from last year, or decreases in demand in the low single digits. Prices showed no change over the last quarter and one contact who had previously mentioned the potential for price increases later in the year no longer mentioned that possibility. Headcount remained stable with no change quarter over quarter or year over year for the majority of firms. Most contacts remain largely optimistic going into the next quarter mixed with slight apprehension looking toward 2020.

Commercial Real Estate

Commercial real estate markets in the First District showed somewhat mixed results in recent weeks. The Boston area saw ongoing robust leasing activity in the high technology and life sciences sectors as well as for industrial properties, and rent growth has been very strong in these sectors over the past twelve months. Although several new office buildings broke ground in downtown Boston in recent weeks, the delivery pace of new office space in the metropolitan area slowed on a year-over-year basis, and ongoing construction activity is not expected to boost vacancy rates any time soon. Sales volume slowed modestly in the second quarter in Boston's office and industrial property markets, but this was attributed to lack of inventory. Elsewhere in the First District, office leasing picked up slightly in the Providence area and held steady at a slow pace in Hartford, and in both of those cities, contacts expect activity to experience a seasonal slowdown in the near term. The outlook also appears mixed. A Connecticut contact highlighted weak business sentiment and fiscal strain as ongoing barriers to growth, while Boston contacts seemed bullish for the near-term but saw external risks coming from financial markets and a weaker macroeconomic outlook.

Residential Real Estate

Residential real estate markets in the First District continued to show strong momentum in May. Single family homes market saw robust sales activities, with closed sales and pending sales increased in all reporting areas. Inventory decreased moderately in Rhode Island, Boston and Maine, while Massachusetts and New Hampshire experienced a larger drop.

House prices continued to rise in the region. Prices reached milestones in several places. The median sales price of a house surpassed $300,000 in Rhode Island and $400,000 in Massachusetts both for the first time.


For more information about First District economic conditions, visit:

All Beige Book content going back to 1996 can be found at the Board of Governors website.

The Minneapolis Fed hosts the Beige Book archives by district, going back to 1970.