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

Economic activity slows markedly in March, retail and tourism hit particularly hard Economic activity slows markedly in March, retail and tourism hit particularly hard

April 15, 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, April 15, 2020

Summary of Economic Activity

The coronavirus pandemic slowed business activity markedly in some First District sectors, notably retail and tourism, while having mixed effects on others, as of the end of March. Most responding retailers closed stores and saw sales drop significantly in recent weeks, while tourism plummeted. Software and information technology services firms reported first-quarter growth above expectations, but a sharp drop-off in orders from new customers. Almost all the First District manufacturers responding in this round said their sales were rising, in large part because of pandemic-related demand; a furniture maker, by contrast, shut down production because demand fell to zero. Commercial real estate activity halted abruptly across the region in March. First District residential real estate contacts expect March data to show a pause. Manufacturers had cautiously positive outlooks, but other sectors expressed considerable uncertainty.

Employment and Wages

Employment and wage changes across sectors largely reflected demand patterns. The retailers who closed brick and mortar stores furloughed the store workers. Two retail contacts reported pay reductions for corporate staff; one progressively from 5 percent to 30 percent based on pay level, and the other 20 percent across the board, which came with a four-day work week rather than five. Only one manufacturer, a furniture maker who halted production, reported laying off workers. Most manufacturing contacts had not revised their employment plans as a result of COVID-19. A packaging firm said headcount fell but that was planned long before the pandemic. A frozen fish manufacturer was hiring to meet added demand but was concerned -- because they were union workers -- that the firm would not be able to reduce headcount when demand returned to normal. Employment at software and IT services firms remained steady through the first quarter, although most contacts reported plans to do replacement hiring only for critical roles as they moved into the second quarter. All the responding software and IT firms have moved to a work-from-home posture which, so far, has allowed them to maintain full employment and full salaries.


Contacts cited few changes in the pricing environment. No responding manufacturers noted any unusual pricing pressure. A frozen fish firm said that it eliminated substantial promotions in response to much stronger demand, meaning that prices to consumers were higher. A drug company said that the COVID-19 pandemic led it to cancel a planned price increase. Despite pockets of softness in demand, software and IT services contacts said they currently had no plans to alter selling prices.

Retail and Tourism

Retail respondents for this round mostly reported substantial drop-offs in sales, which were attributable to COVID-19 store closings. A contact who closed stores during the third week of March saw online sales quadruple in the final week of March, which had traditionally been a small portion of their total sales, but the increase did not fully offset the in-store decline. Another contact who closed stores in the third week of March reported a decrease in online sales of roughly 25 percent. One contacted retail chain could keep all stores open, and their sales were up dramatically in the first three weeks of March; by contrast, sales in the final week of March dropped by mid-single-digit percentages from a year ago. An online retailer saw sales grow more than 50 percent as workers settled into working from home and demanded more home-office furnishings as well as other home goods. All contacts reported they had stronger sales in January and February than in recent years.

Travel industry contacts reported that the volume of passengers and flights fell drastically in March. Hotel occupancy and room rates in the Boston area dropped dramatically throughout March as large conferences and other travel plans were cancelled. One tourism contact reported that coastal communities that rely on seasonal business are cautiously optimistic about a snap-back in visitors who are driving-distance away soon after advisories are lifted, reflecting pent-up demand from cancellation of planned vacations throughout the spring.

Manufacturing and Related Services

Of 11 firms contacted this cycle, 10 reported higher sales despite, or in many cases, because of the pandemic. The one exception was a furniture manufacturer who sells largely through company-owned stores; as of March 27, they had shut down manufacturing and closed all their retail stores because of COVID-19. Other contacts saw rising sales for a variety of reasons, most linked to COVID-19 and its associated effects on the economy. A frozen fish manufacturer and a cardboard box company attributed recent strong results to brisk sales in grocery stores. The fish company said that the increase in demand had left it with essentially no inventories. A toy company said sales were good because social distancing meant people were spending more time at home with children. A medical goods manufacturer had a ten-fold increase in orders for portable ventilators. A manufacturer of membranes used in ventilators and N-95 masks, not surprisingly, had strong sales. The membrane manufacturer also sells into the auto industry and said that declining auto production freed up production for the medical market.

The outlook was generally positive. Even the furniture maker was hopeful that workers could return soon and was also investigating government programs for relief. Several contacts were generally optimistic but said they were more cautious than before the pandemic.

Software and Information Technology Services

Software and IT services firms reported growth that exceeded expectations for the first quarter, but indicated there was uncertainty looking ahead to the second quarter. Two contacts reported that first quarter revenues were up 20 percent to 24 percent year-over-year, and all respondents noted strong demand in the first two months of 2020. During March, new bookings declined drastically across-the-board and one contact mentioned that they had zero new bookings for that month. While contacts remain cautious about maintaining cash flow, they plan to reduce operating expenses by limiting travel and cancelling large annual events through the end of the year. Overall, firms expressed uncertainty regarding the duration of this downturn but remain cautiously hopeful in their relationships with existing customers and the decisions they have made to limit expenses going forward.

Commercial Real Estate

Commercial real estate activity in the First District had continued to strengthen before the COVID-19 outbreak but fell sharply afterwards. Before the outbreak, the Boston leasing market was robust in both the office and industrial sectors, and rents were increasing. In the Providence leasing market, vacancies were low and rents were steady. In the Greater Hartford area, both the leasing and investment sales markets were slow but steady. The COVID-19 outbreak began affecting commercial real estate markets across the District in mid-March, with a near-total freeze in new office leasing activity, collapse of some sales in progress, growing disturbances in credit markets, and steep declines in construction activity. Retail tenants were especially hard hit, enacting store closures and mass layoffs, and many have received at least temporary forbearance on rent payments. In contrast, the industrial sector experienced increased demand for warehouse space to support e-commerce in response to the outbreak. Contacts on balance were cautious and observant, but all expressed significant concerns about the near-term outlook for commercial real estate activity in light of the COVID-19 pandemic.

Residential Real Estate

Residential real estate markets in the First District continued to experience very low inventory levels in February (the latest data available for Rhode Island, Massachusetts, Boston, New Hampshire, and Maine, with no data available for Connecticut and Vermont). For single family homes, sales were up in February from a year earlier in Rhode Island and Maine but down in Massachusetts, Boston, and New Hampshire. For condos, sales rose in Rhode Island, Massachusetts, and Boston while dropping moderately in New Hampshire and Maine. Median sales prices generally increased and inventory declined substantially for both single family homes and condos. Contacts from Rhode Island, Massachusetts, Boston, and Maine all noted that inventory levels have been "desperately" low.

Contacts said they expect March 2020 data to show a pause in housing market activity caused by the COVID-19 outbreak, a pause they expect will continue throughout the pandemic-related economic slowdown.


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