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, Dec. 2, 2020

Summary of Economic Activity

Economic activity continued to expand in the First District in October and early November. Most manufacturers cited increases in revenues in recent weeks compared with a year earlier. Tourism and hospitality remained in the doldrums, while brick and mortar retailers saw gains from earlier in the year. Staffing firms' revenues were down from a year ago, but they too cited quarter-over-quarter improvements. Real estate markets for industrial and lab space continued strong even as the office and retail real estate markets remained weak. Residential real estate markets across the region continued to experience increases in both sales and prices. Reports on the labor market were mixed. Most responding firms cited cautiously optimistic outlooks, with continued uncertainty.

Employment and Wages

Labor market conditions varied by sector. Many hotel workers across the region remained furloughed, particularly staff that worked larger functions. Most manufacturing respondents said they were hiring; some reported difficulty finding workers but others did not. A supplier to commercial aviation announced major layoffs over the summer and has not had any reason to revise those plans either up or down since then. Staffing companies, while noting increased business, reported that the supply of labor continued to be a challenge. They cited a number of reasons for a shortage of workers: limited or lack of access to daycare and school, worries about contracting COVID-19, mandatory 14-day quarantines, and potential further shutdowns. Staffing firms' bill and pay rates have gone up considerably since the pandemic hit, but some companies said the rates had begun reversing toward their pre-pandemic levels.

Prices

Contacts cited limited concerns about prices. Average nightly hotel prices in Boston dropped 45 percent compared to 2019 reflecting extremely low occupancy. Manufacturers said pricing pressures were generally muted. Nonetheless, a chemical maker said prices of some bulk chemicals had spiked due to demand for PPE and the recovery in China. Several manufacturers registered cost concerns regarding the availability of transportation both locally and around the world.

Retail and Tourism

Retail contacts noted improvements in brick and mortar store sales compared to the first half of 2020, though tourism and hospitality respondents continued to report major disruptions related to COVID-19. After limited in-person shopping in the second quarter, one retailer's same-store sales were off just 5 percent—exceeding expectations—across August, September, and October compared to the same period in 2019, with home décor and furnishings doing best. Another retail contact reported sales improved more than anticipated from the spring, but were down by mid-single digits from a year ago.

Restaurants across Massachusetts benefited from a dry summer and start of fall, but as temperatures declined, outdoor dining and average sales dropped. At the same time, COVID-19 cases increased and new restrictions were imposed, both of which contacts suspected raised concerns with indoor dining. Many restaurants that used tented spaces to increase social-distanced table capacity this fall reported that heating constraints will shut down those spaces as winter approaches. Restaurants in Boston continued to fare the worst in the state, on average, and some will close for the winter, as operating at reduced capacity would lead to greater losses.

Travel industry contacts reported that hotel stays were still significantly impacted by the pandemic; hotel occupancy in Boston was under 30 percent as compared with a 2019 average over 80 percent. Conventions scheduled in Boston through July 2021 have been postponed.

Manufacturing and Related Services

All but one of 11 contacted manufacturers reported increased sales versus a year earlier. The lone exception has large exposure to commercial aviation and autos, with commercial aviation down 40 percent to 50 percent and autos down 10 percent to 15 percent. By contrast, some contacts reported strong gains, including a manufacturer of testing equipment who said sales were up 35 percent and a semiconductor equipment supplier with a 45 percent increase. A manufacturer of ventilators cited $400 million in orders as compared to $20 million in a normal year. A supplier of products to veterinarians said that demand was up partly because the number of pet owners has increased during the pandemic.

Capital expenditures were generally up but several contacts reported delays in delivery of capital goods. No one reported any issues with financing. Most contacts had not made major capital investments in response to high demand because they viewed it as temporary.

Manufacturers generally reported positive outlooks, albeit with some caution because of uncertainty about both the path of the pandemic and the timing of vaccines.

Staffing Services

New England staffing firms reported positive growth in Q3 regardless of their industry exposure. Quarter-over-quarter growth rates ranged from 10 percent to 15 percent for firms that shared numbers. By early Q4, a few companies enjoyed levels of business activity similar to their pre-COVID ones. All contacts remarked that business volume was still down compared to a year ago, citing numbers from -8 percent to -40 percent. All reported that business has steadily regained momentum since July, with the demand for labor strong. One contact had shifted to placing essential workers due to higher demand. In general, staffing firms were more optimistic now than they were in August. They expect modest slowdowns next quarter but quick recovery in the following quarters of 2021.

Commercial Real Estate

Conditions in First District leasing markets have not changed appreciably since the last report. Industrial and lab space continued to do well, while retail and office space continued to suffer. Much industrial activity was related to e-commerce and last-mile fulfillment. Construction activity in the industrial market was somewhat restrained by increased construction costs. In the life-science sector, one contact reported that around 5 million square feet of lab space is underway to be delivered by the end of 2025 in greater Boston, with about 40 percent of it pre-leased.

With very little leasing activity in the office sector, tenants nearing the end of their leases were renewing only for the short term. Some respondents reported an increase in available office sublease space, indicating more office-market problems to come. Retail properties continued struggling, with grocery and big-box stores the only successes. Contacts estimated daytime office occupancy rates at around 20 percent—bad news for the shops and restaurants that relied on office workers' business. Regarding the outlook, contacts expressed cautious optimism, with positive vaccine news and the election behind them. Many expected Q1 2021 to be tough, with the pandemic picking up again and uncertainty about future stimulus measures, but they were hopeful about the second half of 2021.

Residential Real Estate

The First District saw high sales numbers in September or October, as pent-up demand from the delayed spring market and eagerness to take advantage of historically low mortgage rates overpowered the usual fall slowdown. (Connecticut data were unavailable. Boston and Maine reported changes from October 2019 to October 2020; all other areas reported changes through September 2020.)

The number of closed sales increased in all reporting areas from a year ago, with double-digit increases for all markets except Boston condos. Notwithstanding these unusually high sales numbers, severe inventory shortages continued; the inventory of homes for sale dropped by double-digit percentages from a year ago in all reporting markets except Boston condos. The lack of inventory and high buyer demand continued to put upward pressure on prices and, once again, the median sale price rose in all markets, with double-digit increases for single family homes. Contacts expected this "buying frenzy" to continue through the winter months. The Massachusetts contact again mentioned movement from urban areas to suburban and rural areas, and the Maine contact noted a substantial influx of out-of-state buyers.

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.