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

Economic activity expands amid modest price increases, positive outlooks Economic activity expands amid modest price increases, positive outlooks

January 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, Jan. 15, 2020

Summary of Economic Activity

Economic activity continued to expand in the First District at the close of 2019. Retailers and manufacturers cited modest to moderate revenue increases from a year earlier, while results for software and information technology services firms were stronger. Respondents in these three sectors also reported continued tight labor markets, but none mentioned increasing wages (other than scheduled minimum wage rises in some states). Price increases continued to be modest according to contacts. Inventory shortages persisted in New England residential real estate markets, and median sales prices for single-family homes and condos rose across the region in November. Greater Boston's commercial real estate market continued to be robust, while commercial activity in the Providence area was moderate. Business outlooks ranged from very positive to cautiously optimistic, mostly reflecting expectations that recent trends will continue into 2020.

Employment and Wages

Contacts in all sectors reported that labor markets remained tight in many areas. Retailers noted that minimum wage increases in effect January 1 in some states further raise labor costs. While two contacts in the software and IT services industry noted that acquisitions made in the past year led to increased headcounts, only one mentioned that this could lead to future restructuring. Most of the software and IT services hiring is for replacement only; while many contacts cited tight labor markets as hurdles for filling vacancies, one noted that there appeared to be no shortage of entry-level labor. One manufacturer, a biotech firm, reported significant hiring plans; they plan to roll out a new drug and need additional staff. Other manufacturing contacts continued to report difficulties hiring new workers.


Business contacts reported that prices had risen modestly or not at all. Retailers indicated that their price increases were very minimal in recent months. For most software and IT services firms, pricing was unchanged over the past year, but two contacts reported price increases of 3 percent to 5 percent year-over-year on contract renewals for their larger enterprise customers. Manufacturers cited muted pricing pressure. A fish producer said that tariffs had stabilized but the resulting costs were difficult to pass on to supermarkets.

Retail and Tourism

Retailers consulted for this round reported that year-over-year comparable-store sales results ranged from flat to up a few percentage points. Black Friday and Cyber Monday results were very strong, while Green Monday (December 9) was a bit softer, in what was a very short holiday sales season. Contacts expressed some concern that higher costs, whether related to labor markets or tariffs, in combination with a very competitive retail environment, will put a damper on revenue growth. However, capital spending plans for 2020 are on pace with or exceeding investment expenditures in 2019. An auto industry contact reported that November vehicle sales were 2 percent higher than a year earlier, continuing at a fairly slow but steady pace.

Travel industry contacts reported that in November, occupancy rates were down very slightly compared to 2018; for 2019 as a whole, occupancy rates were also expected to post a slight decrease. However, lodging revenues were up year-over-year. In one tourist market, this reflected an increase in the average nightly room rate. In the Boston area hotel market through November, room rates were virtually unchanged from 2018 but new hotel rooms increased the supply, with more new hotels planned. The travel industry expects 2020 to be a good year; large conventions booked in Boston will help, as will the greater number of H2B visas issued to fill staffing requirements.

Manufacturing and Related Services

Reports from manufacturing contacts were generally positive. The number of responding firms was small in this round. All four contacts reported higher sales versus the year-earlier period and two said sales growth exceeded their expectations. A packaging manufacturer attributed the strong growth to retail sales and a defense contractor said that orders were high. A frozen fish producer said strong revenue growth largely resulted from a change in the mix of sales to higher priced goods.

Three contacts reported lower capital investment but in two of those cases the reduction was expected after unusually high investment in recent years.

All manufacturing respondents had a positive outlook. Only one, the packaging firm, said it had revised its outlook up in recent months, citing a soft period last year that appears to have ended.

Software and Information Technology Services

The New England software and IT services industry ended 2019 on a strong note according to contacts. Across the board, demand growth was positive, both year-over-year and quarter-over-quarter, with most contacts seeing year-over-year demand growth in the double digits. Cloud and subscription-based offerings continued to perform well, but growth was attributed to an overall strong industry rather than specific product lines. Overall, contacts were mostly optimistic. While political and macroeconomic uncertainty remained a factor, many respondents were confident about their ability to execute their business plans in the coming quarters and expected that the strong demand seen at the end of 2019 would carry through to 2020.

Commercial Real Estate

Commercial real estate activity in the First District has continued to strengthen despite some variation across areas. The leasing market in Boston was robust in the last quarter of 2019. Most contacts reported that they experienced higher activity than at the end of 2018. Activity levels picked up from November to December, and rents continued to rise. Vacancies were low and construction was robust. Life sciences were strong contributors to growth in 2019. The investment sales market in Boston was strong and liquid. Contacts said the commercial real estate market in Boston was a yield generator and the outlook was very positive.

In the Providence area, by contrast, the leasing market was moderate. Existing construction projects continued as scheduled, but few new projects have been undertaken. Rents rose in both the office and industrial leasing markets. The investment sales market was also moderate, and capitalization rates remained stable. The outlook for Providence was cautious; one contact mentioned that uncertainties associated with the 2020 election may cause businesses to be more reserved in making long-term decisions.

Residential Real Estate

Most residential real estate markets in the First District experienced declines in closed sales in November. For single-family homes, closed sales decreased in Rhode Island, Massachusetts, Boston, and Maine while increasing slightly in New Hampshire. Median sales prices increased moderately in all areas. For condominiums, closed sales were down in all areas except Maine. Condo prices dropped in New Hampshire while increasing or staying flat elsewhere in the region. Based on combined statistics for single-family homes and condominiums, Vermont experienced a moderate decrease in closed sales and an increase in prices.

Inventory shortages prevailed. In particular, Rhode Island, Massachusetts, New Hampshire, and Maine experienced double-digit drops in inventory for both single-family homes and condos. According to the Massachusetts respondent, many potential sellers are concerned about having nothing to buy after a sale because inventories are so low. Contacts expressed cautious optimism for the coming months.


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