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

Modest increase in economic activity continues, but outlooks remain highly uncertain Modest increase in economic activity continues, but outlooks remain highly uncertain

September 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, Sept. 2, 2020

Summary of Economic Activity

Business activity continued to pick up modestly in the First District in July and early August, even as some sectors saw little improvement. Some retailers cited strong activity, while air travel and hotels remained very soft. Manufacturing and staffing results were similarly mixed, with results largely a function of the pandemic's effects on the sectors of the firms' clients or customers. Residential real estate markets have begun to recover from the pause this spring. Commercial markets were split, with the retail and office sectors still very weak and warehouse and lab space robust. Outlooks continued to be highly uncertain, with more respondents expecting at least mild improvement than predicting increased losses.

Employment and Wages

Employment changes were mixed. Retail contacts selling autos and furniture brought back almost their entire workforces after layoffs and furloughs in the spring. By contrast, many hotel workers remained furloughed, particularly food and beverage staff that typically work larger functions. Similarly, an aviation and auto industry supplier furloughed large numbers of employees and recently announced an 8 percent permanent staff reduction. Some manufacturing contacts giving "hazard pay" to employees said they planned to stop doing so, but one said that they would continue the practice for fear of damaging morale. Staffing firms also noted that hazard pay for some jobs had been eliminated. Some clients of staffing firms raised pay compared to pre-pandemic levels to enhance recruitment.


Contacts again said little about prices. Manufacturing contacts continued to report a benign pricing environment. A milk producer said raw milk prices were very low due to decreased demand from restaurants.

Retail and Tourism

Respondents continued to report major disruptions related to COVID-19, though some noted improvements since the spring. After limited in-person shopping, car sales in Connecticut were strong throughout June, July, and the start of August, except for the week that remnants of Hurricane Isaias caused power outages throughout the state. A furniture retailer reported average weekly sales up 30 percent compared to last summer, with weekly online sales up more than 300 percent compared with the same weeks in 2019 and in-store sales roughly one-third of pre-pandemic levels.

Restaurants across Massachusetts dramatically increased outdoor dining options. Over one-third of restaurant sales came from outdoor dining, which is unusual in Massachusetts where fewer than 20 percent of restaurants had outdoor dining options before the pandemic. Restaurants in coastal areas operated at around 75 percent of their usual sales, on average, while those in Boston were faring worse than the rest of the state.

Travel industry contacts reported hotel stays continued to be impacted significantly by the pandemic, with occupancy rates in Boston remaining under 20 percent. Some hotels will be housing college students for the fall semester to alleviate density in dormitories. Conventions scheduled into the first quarter of 2021 in Boston have been postponed. Air traffic into Logan remained low, with reductions of more than 85 percent in domestic passengers and more than 95 percent in international travelers.

Manufacturing and Related Services

Experiences diverged markedly across the ten manufacturing firms contacted this cycle. Firms with exposure to home goods, semiconductors, and health care reported strong results, even compared with a year ago, while firms with exposure to aviation and automotive continued to suffer. A manufacturer and retailer of furniture reported that sales in the summer were up 30 percent year-on-year. Semiconductor firms reported significant increases in sales which they attributed to demand for devices and the upcoming release of a new iPhone. By contrast, a firm that makes parts for jet engines reported that sales were down 60 percent; OEM demand was down and aftermarket demand more or less vanished as airlines were not using their planes and were also trying to conserve cash.

One manufacturer said that they were increasing capital expenditures both because of discounts on capital goods and because they wanted to be in position to take market share when the economy recovers. Other firms said they faced COVID-related delays in construction or acquisition of capital goods. The commercial aviation-related contact cut capital expenditures substantially.

Contacts said they expected current performance, whether good or bad, to continue in the near term.

Staffing Services

New England staffing firms reported mixed business results into August, reflecting their different industry exposures. Firms that provide services to COVID-related industries, particularly healthcare, continued to see improvement and business growth since the spring. Most contacts indicated that labor demand is the same as or higher than in the spring. Some client organizations called back temporary workers whose jobs could not be done remotely; some moved from entirely virtual hiring to conducting the last round of interviews on-site.

Labor supply was described as complex. The majority of contacts reported difficulty finding candidates who were willing to work, especially for pay rates that might be lower than pandemic-augmented unemployment benefits. A lack of access to daycare and unwillingness of some working parents to send their children to daycare contributed to a reduced pool of candidates. By contrast, one contact saw increased applicants, citing recent layoffs and furloughs as driving factors.

Overall, respondents remained cautious about the uncertainty of the COVID situation and the upcoming election. The majority of contacts were somewhat more optimistic than three months ago, but a few were less optimistic and expected business activity to slow in Q3 and Q4.

Commercial Real Estate

Around the First District, the office and retail property sectors experienced ongoing weakness while markets for warehouse and lab space remained robust. Office leasing activity remained limited to renewal of expiring leases, and tenants sought renewals of only 1 to 3 years' duration. The supply of office space for sublease increased by a significant margin, with the office vacancy rate in downtown Boston—including sublease supply—rising to an estimated 11 percent in August from roughly 6 percent in March. Office asking rents were steady, but effective rents declined amid increased leasing concessions. Office sales transactions were close to zero and office construction was limited to projects that were underway before the pandemic.

The District's industrial property markets saw continued robust demand, as online retailers further expanded their warehouse and distribution space. Demand for laboratory space in greater Boston stayed very strong; one contact raised concerns of a potential glut of lab space when planned projects are completed. The retail sector remained weak apart from grocery-anchored shopping centers and pharmacies; contacts cited an uptick in closures of small businesses. A regional lender to commercial real estate saw steady loan volume as well as a modest increase in requests for loan payment deferrals.

Contacts expected commercial real estate activity to stay flat or decline further for the remainder of 2020 and expressed a very uncertain outlook for 2021. Some were concerned that commercial bankruptcies and foreclosures would accelerate in coming quarters without renewed fiscal stimulus measures.

Residential Real Estate

Residential real estate markets in the First District began to pick up in July, following slow sales this spring due to the outbreak of COVID-19. (Boston and Vermont reported year-over-year changes from June 2019 to June 2020. Connecticut data were unavailable. The other four New England states reported statistics through July.) Closed sales for single-family homes increased for all areas reporting July statistics. Condo sales increased in July in New Hampshire and Maine, and decreased by about 1 percent in Rhode Island and Massachusetts. Across the region, contacts were optimistic that sales activity would continue at a high level into the fall.

Markets continued to favor sellers. Inventory decreased for both single family homes and condos in all reporting areas, with all markets except the Boston condo market experiencing double-digit drops. Median sales prices rose in all markets except for Boston condos. Additionally, both the Massachusetts and Boston contacts noticed increased moves from urban to suburban locations, which they attributed in part to the pandemic.


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