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

Economic activity improves somewhat, but outlook remains unusually uncertain Economic activity improves somewhat, but outlook remains unusually uncertain

July 16, 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, July 15, 2020

Summary of Economic Activity

Economic activity picked up somewhat in the second half of May and June, according to First District business contacts, but largely remained well below year-earlier levels. Retailers reported increased sales in June, with some online purchases exceeding June 2019. Tourism contacts cited much-improved summer bookings in coastal areas compared with cancellations in April and May. Manufacturing results were mixed, but most reported rising revenues. Software and information technology services firms said their businesses were holding steady, with declines in new orders but continuing strength from existing customers. Commercial and residential real estate markets in the region continued to report that activity had paused. Considerable uncertainty characterized respondents' outlooks, as was the case in the May report.

Employment and Wages

Employment changes were mixed across firms and sectors. One retailer brought back all corporate staff full time on July 1 and plans to bring about 1,800 furloughed warehouse and store employees back to work in August. An online retailer is hiring more workers, particularly customer service, to meet increased demand. Employment among manufacturers was mixed, with some firms hiring many workers and others engaging in layoffs and furloughs. An aerospace manufacturer laid off 7 percent of its workforce and cut salaries for all employees including senior executives. A toy maker furloughed salespeople and complained that production workers had not returned because of generous UI benefits. Responding software and IT services firms said they have continued to pay employees fully, partly funded by declines in operating expenses due to travel cutbacks. Headcount was down since last quarter at two software firms that froze hiring. By contrast, one IT firm continued to hire and said other layoffs in tech made it possible for them to bring on new highly skilled workers.


Prices continued to receive little mention. Manufacturing contacts cited a benign pricing environment with no one reporting significant positive or negative pricing pressure either among their suppliers or in their end-markets. Similarly, most software and IT services contacts reported no current plans to change pricing.

Retail and Tourism

Retail respondents continued to report major disruptions related to COVID-19 shut-downs but, despite the challenges, sales have improved since April. One contact reported increasing strength week-to-week in June, with women's clothing and outdoor equipment leading sales growth. An online retailer similarly reported increased revenue and continued growth in first-time users. They noted sustained year-over-year increases in sales of home office supplies and, more recently, higher sales of large home appliances, which previously were not a major source of revenue. One retailer whose sales dramatically increased in March and slumped in April and May reported June results at nearly the same level as June 2019. One contacted retailer noted looting and vandalism from the protests in early June at several stores.

Travel industry contacts reported improved bookings of hotel stays and short-term rental properties. In one coastal area, hotel bookings have nearly returned to 2019 levels for July and August. Restaurants in these areas continue to report difficulties adjusting to distancing restrictions, but each successive weekend has resulted in more customers. Air travel, however, remains severely impacted by the pandemic; total air passengers in Boston in June were down more than 85 percent from the same time last year, an improvement from April (down over 97 percent). Cruise traffic has been halted until September.

Manufacturing and Related Services

Experiences varied widely across the eight manufacturing firms contacted this cycle. A frozen fish producer and a maker of cardboard boxes reported very strong demand and sales; the box company said that sales growth slowed in June but was still strong. A toy company said that business had slowed significantly since April, partly because the cessation of movie production hit their media tie-ins, and partly because of production difficulties. An aerospace company said that while defense sales remained strong, commercial aviation declined. Idle planes mean no demand for aftermarket parts; in addition, build rates for new planes are falling because the travel recession is expected to last until 2022 and consequently airlines do not want to take delivery of new planes. A manufacturer and retailer of furniture which closed in March has reopened and hired back most of its employees after securing PPP funding and seeing demand pick up. A travel industry contact reported that goods trade through Boston's port fell in May, with exports down 40 percent and imports down 9 percent from the prior year.

The outlook was somewhat mixed. Most respondents said they expected business to improve over the rest of the year, but the toy maker said they would make significant staff cuts if sales did not improve by August.

Software and Information Technology Services

Activity at software and IT services firms in the First District remained mostly stable throughout the most recent quarter. All firms reported significant declines in new bookings, but steady revenue from existing customers. The majority of firms expected to see flat to 2 percent revenue growth, with another firm anticipating low double-digit growth year-over-year attributable to a cloud-based software acquisition finalized earlier this year. Multiple firms noted that what recent demand they have seen, has mostly been for cloud-based product lines.

Respondents were split in terms of optimism, with most remaining concerned regarding the U.S. economy. One medical technology contact noted that their elevated uncertainty may linger through the end of the year as hospitals remain focused on the pandemic. Contacts that reported being more optimistic than last quarter generally cited increased demand for cloud-based services and increased certainty regarding remote operations.

Commercial Real Estate

Commercial real estate activity in the First District has remained on pause because of COVID-19. Most contacts reported an increase in sublease availability in the office leasing market. Most tenants were able to pay May and June rents, except for retail tenants who were hit hardest by the pandemic. Warehouses, grocery stores, and pharmacies were among the few robust leasing sectors. Across the region's markets, investment sales activity was slow to nonexistent. All contacts expressed substantial concern about uncertainty.

In the Boston area, few leasing transactions have occurred. Vacancies increased in the Boston office market while the industrial leasing market was also quiet, except for warehouse leasing. In the Hartford area, there was little leasing activity; renewals represented the only office leasing market transactions. Hartford's industrial leasing market for buildings over 25,000 square feet was relatively active, but the market for smaller buildings was quiet. In the Providence area, leasing picked up slightly in recent weeks, but most transactions were time-sensitive deals. The pandemic has worsened the historically quiet industrial leasing market in Providence, and contacts expected the availability rate to rise significantly in the near future.

Residential Real Estate

Residential real estate markets in the First District remained slow through May as a result of the COVID-19 pandemic. (All areas reported year-over-year changes from May 2019 to May 2020. Connecticut data were unavailable.) For both single family homes and condos, all reporting areas experienced double-digit decreases in closed sales compared to a year ago. Many contacts indicated they viewed this as a temporary pause in activity, saying people had delayed, rather than cancelled, their plans to buy or sell. Contacts across the region said they anticipate a busy summer as local economies begin to reopen and people who put their plans on hold because of the pandemic enter the market. However, they also expressed concern that further spread of the virus may cause market activity to slow again.

Residential markets continued to favor sellers. Inventory dropped substantially in all reporting areas for both single family homes and condos. At the same time, median sales prices increased in all areas except for Vermont and condo markets in Boston and Massachusetts. The New Hampshire representative noted "Buyers have been quicker to return to the housing market in force than sellers." Eagerness among buyers to take advantage of exceptionally low mortgage rates is likely contributing to this dynamic.


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