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

Expansion continues as most manufacturers, retailers, staffing firms see growth Expansion continues as most manufacturers, retailers, staffing firms see growth

March 4, 2020

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, March 4, 2020

Summary of Economic Activity

First District firms continued to report increases in economic activity heading into 2020. Retailers reported mixed but mostly positive results, while restaurateurs saw solid revenue gains. Most manufacturers experienced revenue increases ranging from mid single-digit percentages to more than 20 percent, but two respondents cited revenue declines, both attributed in part to disruptions related to the coronavirus outbreak in China. Staffing firms continued to report moderate to strong revenue gains, although a couple cited slowing growth or fewer job requests compared with last year. Residential real estate markets remained tight in the region, with inventories of both homes and condos decreasing as sales and prices rose. Commercial real estate markets were mixed across sectors and locations. Outlooks continued to be positive, with the coronavirus and the presidential election cited as risk factors.

Employment and Wages

Labor markets in the First District remained tight. Retailers noted that minimum wages went up in some states; those increases, in combination with a generally tight labor market, have pushed up operating costs. Employment increased year-over-year at five contacted manufacturing firms; headcount was down modestly year-over-year at one manufacturer and flat at four. Almost all the manufacturers who were actively hiring reported difficulties finding workers for nearly all positions ranging from skilled executive assistants to experienced wood-workers and engineers; competition was said to be particularly fierce for higher skilled jobs in northern New England. Staffing firms reported that low unemployment rates gave workers less incentive to look for new temporary or permanent positions; at the same time, a dearth of fresh college graduates and young workers with two to three years of experience further limited the available pool of qualified talent. A majority of contacted staffing firms reported bill and pay rates that were either holding steady or rising only modestly in line with inflation or increases in benefits costs.


Prices were mostly unchanged or up modestly. Retailers said prices largely remained steady in recent months. Restaurateurs noted that menu prices were up 3.1 percent year-over-year, while wholesale food prices rose 1.6 percent, a spread that caused some consumers to reduce spending on eating out. Prices at most manufacturing firms stayed level since last quarter, and were flat or up in the very low single digits year-over-year. One notable exception was a dairy producer who reported increased input costs of 6 percent over the past quarter, following a 9 percent increase the prior quarter; they expect prices to level off into 2020.

Retail and Tourism

First District retail respondents reported comparable-store sales ranging from a decrease of a few percentage points to increases in the mid-single digits year-over-year. Two retail contacts plan significant business expansion, as reflected in their capital spending plans for 2020. One retailer noted that their inventory levels were impacted by the coronavirus in China, which slowed production at some manufacturing plants. Consumer sentiment remained strong.

Anecdotally, Massachusetts restaurant sales through the first seven weeks of 2020 have been good, fueled by the redemption of gift cards and mild winter weather. Through December—the latest month with hard data on state meals-tax receipts—Massachusetts restaurants saw total sales increase 4.2 percent year-over-year. But when adjusting for the record number of restaurant units in operation, the underlying sales trend is likely a much more modest 1.1 percent increase. Industry contacts remained concerned that the intense competition for customers amid rising operating costs means that the current number of restaurant units is not sustainable. The outlook for 2020 is cautionary, as the higher advertising costs associated with a presidential election year increase operating expenses.

Manufacturing and Related Services

Reports from manufacturers were mostly positive, with seven of ten respondents reporting increased sales compared to the same period last year. Two semiconductor-related manufacturers reported the greatest gains: driven primarily by a buildup in 5G-related technology, revenues were up more than 20 percent compared to last year. A veterinary care supplier and a dairy manufacturer both reported revenue growth around 11 percent year-over-year. Two other contacts reported low double-digit growth from a year ago, including a furniture manufacturer, who cited large hotel orders as well their most successful Presidents' Day weekend in several years. A biotech firm saw sales and revenue growth in single digits. On the down side, a textile manufacturer reported flat sales, and two firms, in advanced sensors and chemicals, pointed to disruptions related to uncertainty and supply chain challenges from the coronavirus as factors leading to their slower 2020 start. Seven of ten manufacturers did not mention disruptions from the virus to date. A handful of contacts pointed to uncertainty related to the election as a potential risk factor later in the year.

Staffing Services

New England staffing firms ended 2019 on a positive note: some contacts reported higher-than-projected revenue growth; one firm cited a year-over-year growth rate of 47 percent. Some companies saw declines in revenue growth; they indicated the slowdowns were within a tolerable range. Most contacts cited a steady and healthy demand for labor, still outweighing labor supply. Two firms cited a slight drop in the total number of job requests compared to a year ago. One contact shared anecdotally that help-wanted signs were prevalent at a range of local businesses. A number of firms shared favorable projections and most are guardedly, if not highly, optimistic going into the second quarter.

Commercial Real Estate

Commercial real estate contacts in the First District reported mixed performance across market sectors, with strong demand for industrial space, mixed office leasing activity across locations, and troubles in the retail sector. Evidence of the latter is coming partly from value write-downs for national mall operators, but contacts also saw rising retail vacancy rates in both the greater Boston and greater Hartford areas. Industrial space remains in high demand throughout the region: the Hartford area saw significant large-format warehouse leasing and construction activity, and in Rhode Island the combination of robust demand and scarce inventory contributed to increases in industrial property values on the order of 40 percent in the past two years. Office leasing activity varied across markets: stable but very limited in the Hartford area, resulting in slightly negative absorption for 2019, moderate but slowing in greater Providence, and robust in Boston. A Boston contact reported with astonishment that office rents had increased by up to 50 percent in just the past 3 to 4 years and office vacancy rates are as low as 4 percent in some urban neighborhoods.

Investment sales demand was seen as stable throughout the District and remained stronger in Boston than in other areas. Speculative office construction activity increased further in the Boston area—although completions are still a few years off; in other parts of the District, construction activity was dominated by multifamily and mixed-use developments. Contacts expected conditions to remain stable for the most part, although the retail sector is expected to see further weakness and downside macroeconomic risks were cited in relation to the coronavirus outbreak and the presidential election.

Residential Real Estate

Residential real estate markets in the First District ended the year of 2019 on a strong note. Rhode Island, Massachusetts, and Boston reported year-over-year changes from December 2018 to December 2019, while New Hampshire and Maine reported January statistics. Connecticut and Vermont data were unavailable.

Closed sales increased by double-digit percentages in all reporting areas for both single-family homes and condos. Median sales prices generally increased. Inventories of both homes and condos decreased in all reporting areas, with home inventories dropping sharply.

Contacts noted that 2019 was a strong year for real estate, citing a favorable interest rate environment and positive economic conditions as the main reasons. However, low inventory and high demand pushed prices up. Looking forward, contacts expressed optimistic outlooks.


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