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, May 27, 2020

Summary of Economic Activity

Economic activity continued to decline into May according to First District business contacts. Many retailers and almost all hospitality businesses reported low to nil activity levels because of the pandemic. Responding manufacturers and staffing firms cited ongoing fall-offs in sales or revenue in recent weeks, but mostly still at sustainable levels. Commercial and residential real estate markets continued to be on pause, with some retail tenants reportedly having difficulty paying rent. Many firms furloughed or laid off workers, but some, involved in "essential" or pandemic-fighting businesses, retained staff and even continued hiring. Near-term outlooks were highly uncertain and generally downbeat.

Employment and Wages

Employment was generally down among business contacts. At auto dealers, many sales workers were furloughed as transactions moved online. Many employees at year-round tourist operations were laid off. Eight of 10 manufacturers said they had frozen or largely frozen hiring; the two exceptions cited increased output. Some manufacturers laid off or furloughed workers and some implemented pay reductions but, for the most part, headcount and pay remained at pre-pandemic levels. Many firms reported providing hourly supplements for production workers because of work-related risks. While their overall bookings declined, staffing contacts reported that hiring employers were generally offering increased pay to candidates, as much as 25 percent to 30 percent higher than before the pandemic; they expect these higher pay rates to be temporary.

Prices

Few contacts mentioned pricing. Auto dealers reported financing incentives for cars. No manufacturing contacts cited any unusual pricing, except that milk prices collapsed because of reduced sales to restaurants.

Retail and Tourism

Respondents continued to report major disruptions related to COVID-19. Weekly automobile sales in Connecticut dropped 60 percent from February to mid-April, though rebounds began in the final week of April; nonetheless, weekly sales remained down about 30 percent. All sales since the shutdown were online; once in-person sales resume, they are optimistic that transactions will recover further. One retailer continued to see year-over-year increases in sales and profits from online sales, with a large increase in first-time online users.

Restaurants across Massachusetts effectively halted service in mid-March. Upwards of 200,000 workers in Massachusetts restaurants were either furloughed or laid off since then. Fewer than half of full-service restaurants attempted takeout business and many found it not sustainable or profitable. Social distancing rules mean that most restaurants will be able to operate at only 35 percent to 40 percent of capacity, which may not be profitable for many establishments.

Travel industry contacts reported a 65 percent decline in hotel occupancy across New England, and a decline in excess of 80 percent in Greater Boston for April; those figures exclude hotels that were shuttered. Large conventions have been canceled through early fall, and over 200,000 hotel room nights will be lost as a result. In summer destinations, concerns heading into Memorial Day weekend remained high. A contact for one coastal area reported a stark increase in inquiries about bankruptcy procedures from small retailers. Some optimism remains that visitors driving-distance away will satisfy their pent-up vacation demand locally.

Manufacturing and Related Services

Experiences varied widely among 10 responding manufacturers. Four firms reported higher sales than a year earlier. For two semiconductor firms, demand for consumer electronics remained strong. For a diagnostic equipment maker, the mix of demand changed, with less from universities and more from hospitals and other institutions on the front line of the fight against COVID-19. A dairy firm saw "tremendous growth" in March as households stocked up. The explanations for firms with weaker sales ranged from demand reductions from the auto industry and commercial aviation to productivity declines related to COVID-19 prevention.

Nine of the ten contacts said that all their facilities were open and only a few reported that any plants were shut at any point since the pandemic started. These firms' processes were well-suited to social distancing, with well-defined schedules and activities that required no contact between workers. Six contacts, including one with rising sales, reported negative revisions to capital spending.

The outlook was pessimistic for almost all manufacturing contacts. A veterinary products maker said they expected demand to pick up this summer. By contrast, most respondents said they were very uncertain about when or even if demand would return to previous levels.

Staffing Services

Overall demand and placement activity at New England staffing firms slowed compared to pre-pandemic levels, but did not halt. Labor supply was mixed: one firm saw three or four times as many replies to a job posting as before COVID-19; others described supply as volatile. A majority of contacts noted that for some people, unemployment benefits could outweigh a salary, providing less incentive to find a job. Some employers were interviewing and onboarding direct-hires virtually in the past six weeks—a sign that companies were looking beyond the current situation.

Firms reported finding ways to cope with the challenges brought on by COVID-19, with new business strategies or new sales people in some cases. All contacts who were eligible for the Payroll Protection Program received funding, which they regarded as vital support; businesses were also lining up other credit lines and resources in the face of uncertainty. The majority of contacts reported no major structural or compensation changes within their organizations due to COVID-19. Overall, contacts expressed optimism, "excited" (as one put it) to facilitate hiring during the upcoming recovery.

Commercial Real Estate

Commercial real estate activity in the First District came to a halt in March because of the COVID-19 shutdown. There were no leasing and investment sales activities except for a few time-sensitive transactions or lease renewals in Boston, Providence, and Hartford. Most office and industrial tenants were able to pay April rents, but retail tenants struggled. May rent collection was expected to be challenging, and lenders and landlords have been considering payment relief measures. Many tenants were also trying to renew their leases with shorter terms. Business sentiment was cautious and observant.

In the Boston market, renewing tenants were likely to have their rents lowered. Construction in and around Boston was mostly put on hold, except for some essential building projects. In the Hartford area, tenants asked to renew leases for very short periods or to postpone renewal decisions. In the investment sales market, projects in progress still happened, but new projects were pulled off the market or not initiated.

Residential Real Estate

Residential real estate markets in the First District slowed down in March and April due to the outbreak of COVID-19. For single family homes, closed sales decreased in all reporting areas and Rhode Island and New Hampshire experienced double-digit drops in pending sales. (Rhode Island, New Hampshire, and Maine reported year-over-year changes from April 2019 to April 2020. Massachusetts and Boston reported statistics only through March. Connecticut and Vermont data were unavailable.) For condos, sales declined in all reporting areas but Boston. Nonetheless, a seller's market prevailed, with median sales prices increasing and inventory dropping substantially in all reporting areas for both single family homes and condos.

The pause in market activity was expected by many contacts, since COVID-19 restrictions limited the availability of showings and squelched many sellers' moving plans. Looking forward, contacts expressed generally optimistic views on the post-pandemic outlook but considerable concern about near-term uncertainty related to lifting economic restrictions associated with the pandemic.

For more information about District economic conditions visit: www.bostonfed.org/regional-economy.

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.