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

Tourism, staffing sectors show strength as economic expansion continues Tourism, staffing sectors show strength as economic expansion continues

September 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, Sept. 4, 2019

Summary of Economic Activity

Most First District business contacts reported modest revenue growth in the second quarter and into the summer months, but some retailers, hotels, and manufacturers cited stronger sales growth and a couple of manufacturers said revenue was down from a year earlier. Tariffs and general trade uncertainty continued to be mentioned as risk factors. Staffing firms were more upbeat than three months ago, reporting improvements in the pace of revenue growth. Commercial real estate markets also improved somewhat, with Boston continuing to be the strongest area. Residential real estate market activity moderated during the summer months. While some firms mentioned raising wages somewhat to attract and keep employees, most said the labor market was steady. Outlooks ranged from guardedly optimist to generally positive.

Employment and Wages

Labor markets were reportedly not much changed from the last report. One fast-growing retailer reported a successful on-campus recruiting push, filling technical and other jobs and raising wages to do so. Another retailer continued to cite little difficulty hiring sales people. Manufacturing respondents, with one exception, reported no major revisions to their hiring plans. The exception was a semiconductor-related firm facing sales declines, who said they would probably start layoffs within six to eight weeks. Staffing firms said the number of job requests overall remained strong for both temporary and permanent openings. Most staffing contacts reported stable bill and pay rates, but two firms increased both rates by low single-digit percentages.


Contacts said very little about prices. Retailers noted no price concerns. Tariffs continued to be a minor but persistent pricing issue for manufacturers; firms generally tried to pass price increases on to buyers and reported success most of the time. Aside from tariffs, manufacturers reported no unusual pricing pressure.

Retail and Tourism

First District retail respondents this round reported comparable-store sales increases ranging from flat to up by mid-single digit percentages or higher year-over-year. Some contacts said results exceeded their expectations, while others cited July sales a little slower than anticipated. One explanation was a slowdown in getting products from non-Chinese Asian manufacturers, as the ports in these countries were said to be not yet able to handle the increased shipping demand. The retail outlook for the rest of the year is largely positive.

An automotive industry contact in Connecticut reported that sales through June were up slightly from the first quarter. Dealers were selling more used cars than new models, with consumer credit readily available for financing either new or used vehicles. The contact argued that imposing additional tariffs on China would have a disproportionately adverse effect on U.S. autos.

A travel industry contact reported that Boston hotel room demand increased 3.2 percent in June over last year, and that the average room rate was 4.2 percent higher. Boston hoteliers said they were happy with the summer tourism season to date, as strong business and leisure travel kept room demand high. Year-to-date through June, average room revenue for Boston hotels was up 6.9 percent, compared with the national average of 3.3 percent. These mid-year results and anecdotal reports through mid-August lead the tourism industry to expect 2019 revenues to be up solidly over 2018.

Manufacturing and Related Services

Reports from manufacturing contacts continued to be mixed. Three of the nine firms contacted this round are in the semiconductor industry; two reported sales declines versus the same period a year earlier, including one with a 20 percent drop. Several contacts in other industries reported that growth, while still positive, was slower than in earlier periods. A manufacturer of electrical equipment attributed some of its slowdown to lower energy prices reducing demand from energy extraction firms. An aerospace firm which supplies parts to Boeing's 737 MAX aircraft indicated that that aircraft's well-publicized problems had not translated into lower sales yet. A manufacturer of dairy products said demand for their products was the strongest in a long time.

No contacts reported significant revisions to capital expenditure plans. One respondent in the electrical equipment business said that the tariffs had led them to invest more in automating factories in the U.S. as opposed to moving them to Mexico.

Outside of the semiconductor industry, the outlook remained generally positive for most contacts. Many continued to mention trade tensions as an issue.

Staffing Services

New England staffing firms reported positive revenue trends for the second quarter of 2019. All firms cited improved growth rates compared to the previous quarter, with rates as high as 20 percent quarter-over-quarter. Two mentioned that their business results were among the top five performing firms in their respective region. On the other hand, scarce labor supply continues to be the most challenging issue among staffing businesses. Several respondents noted difficulty in matching the skill sets job seekers possessed with those desired by employers. Consequently, companies wanting to hire have been accepting less qualified workers and offering higher pay rates. Staffing firms mentioned aggressive use of online recruiting job boards and offering competitive rates and benefits to candidates. With unemployment low and labor supply limited, staffing respondents cited a guardedly optimistic outlook.

Commercial Real Estate

Commercial real estate activity in the First District strengthened somewhat overall, but differences in performance across geographic submarkets persisted. The Boston area saw robust leasing demand in both the office and industrial sectors. Class A office rents in prime Boston locations increased substantially in the past six months, and the office vacancy rate, at roughly 8 percent, was said by one contact to be at an all-time low. Industrial rents in Boston climbed 6 percent to 10 percent over the year as e-commerce users competed fiercely for scarce warehouse space. Construction activity held steady in the Boston area; in recent months, the share of office construction has risen relative to apartments.

In the Providence area, industrial leasing activity remained robust, exceeding expectations, and two-year rent growth in that market was estimated at 33 percent. Office leasing in Providence softened and office asking rents were stable despite a vacancy uptick; a contact expects effective rents to soften moving forward. In greater Hartford, leasing activity for both office and industrial space was described as very slow but stable.
Investment sales were slow across the District. Contacts expect sales to resume in the fall, with the potential for increased demand following declines in long-term Treasury yields and increasingly favorable borrowing conditions. Concerning the outlook, contacts see no risks of overbuilding or overleverage in commercial property in the District. In Boston, the lack of profitability of high-tech firms occupying large blocks of space was cited as a risk factor. Otherwise, respondents expect stable activity.

Residential Real Estate

Activity in residential real estate markets in the First District moderated in June or July following strong sales results in May. (Rhode Island, New Hampshire, and Maine reported year-over-year changes from July 2018 to July 2019, while Massachusetts, Vermont, and Greater Boston reported statistics through June. Connecticut statistics were unavailable.) For single family homes, closed sales decreased moderately from a year earlier in Massachusetts, Boston, and New Hampshire, and increased in Rhode Island and Maine. Median sales prices rose and inventory declined in all reporting areas. In particular, Rhode Island, Massachusetts, and New Hampshire experienced double-digit inventory drops over the year. For condos, closed sales were down and prices were up in all areas except Maine. Condo inventories improved in Maine, Massachusetts, and Boston, and decreased sharply in New Hampshire and Rhode Island. In Vermont, closed sales and inventory dropped for single family homes and condos combined.

Contacts expressed a positive near-term outlook, citing persistent high demand and low interest rates as reasons. However, contacts voiced affordability concerns as intense bidding and multiple offers still prevail.

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