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

Recovery continues, but results mixed across sectors, and uncertainty clouds optimistic outlooks Recovery continues, but results mixed across sectors, and uncertainty clouds optimistic outlooks

January 15, 2021

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. 13, 2021

Summary of Economic Activity

Economic activity continued to expand in the First District through December, according to business contacts. Retailers reported revenue increases in recent weeks compared with a year earlier, while travel and hospitality remained well below pre-pandemic levels. Manufacturers also cited increased revenues in recent weeks, but some were up only in comparison to earlier in the pandemic, while others saw gains from a year ago. Software and information technology services firms reported gradual improvement, but new bookings remained below year-earlier levels. Reports from commercial real estate contacts were mixed, as in the last report, and residential real estate markets remained strong. Most responding firms were optimistic in their outlooks, but still quite uncertain about the first half of 2021.

Employment and Wages

Labor market reports from business contacts were mixed. Some retailers were holding headcounts steady; one was hiring "aggressively." Manufacturers' reports on hiring varied. Several contacts reported difficulty finding workers, including a furniture maker suffering significant production delays due to a worker shortage. Another contact, however, said that it was much easier to find factory workers now than just before the pandemic. Most software and IT services contacts reported restarting hiring plans, and one noted upward pressure on wages for technical positions.


Observations on pricing were limited. One retail contact noted no price changes; others said little about prices. Manufacturing contacts for the most part reported no unusual pricing pressure. A producer of cardboard boxes said that paper prices had increased after remaining flat for five years. Several contacts noted significant logistics issues both domestically and internationally, causing both higher prices and delays. Software and IT services contacts reported no changes in prices across the board, although one mentioned potentially restarting their annual increases in the next few months.

Retail and Tourism

Travel industry contacts continued to report major disruptions related to COVID-19, but responding retailers reported strong sales throughout the fall and into the holiday season. A furniture retailer noted sustained year-over-year growth averaging about 15 percent in 2020, notwithstanding persistent delays of 8 to 12 weeks for most furniture orders. One clothing retailer reported store foot traffic remains down 30 percent compared to a year earlier, but a higher conversion rate and strong online sales led to a year-over-year increase of about 5 percent in total November sales. With modest increases in sales throughout 2020, this retailer had greater profits because of reduced store operating costs and smaller promotions than in recent years. An online retailer continued reporting substantial growth relative to last year, with year-over-year increases in revenue, profits, and sales to repeat customers throughout 2020.

Airline passengers into Boston remained down 70 percent in November, an improvement from year-over-year declines of over 95 percent this spring. International passengers were down nearly 80 percent in November. International travel to Europe was down sharply, but passengers heading to South America ticked up recently. Scheduled flights in early 2021 are up modestly.

Manufacturing and Related Services

All seven firms contacted this cycle reported a good fourth quarter. For some contacts, including a furniture manufacturer and a frozen fish producer, results were significantly stronger than a year earlier. For others, like a producer of motors and brakes for industrial uses, sales were up significantly versus earlier in the year but still down from a year ago. Five of the seven contacts reported that sales would have been substantially higher were it not for capacity problems. A semiconductor manufacturer said that automotive customers drew down inventories to conserve cash in Q2 and demand has now increased dramatically both because they are producing more cars and because they are restocking inventories.

Contacts were generally optimistic. Although all respondents expressed uncertainty about the vaccine and the evolution of the pandemic, most expected the economy to be back on trend in the second half of 2021. The furniture maker expressed concern about labor shortages and his inability to fulfill orders quickly, which might lead to a reduction in demand for his products. A supplier of components to capital goods manufacturers said that orders started rising in Q4 2020 in anticipation of higher build rates in the second half of 2021.

Software and Information Technology Services

Software and IT services firms in the First District saw a gradual pick-up in demand as the calendar year drew to a close. On a year-over-year basis, demand remained muted as new bookings had not fully rebounded to last year's levels; however, the recent uptick was seen as an early sign of recovery. A contact at a healthcare software firm that was not seeing a pickup attributed the weakness to hospitals' "preoccupation" with the latest wave of COVID-19 cases; this firm has been relying on their backlog for the past 10 months but noted that it would run out at the end of 2020. Margins for all firms continued improving as expenses for travel and facilities remained lower.

Looking ahead, contacts expressed optimism that things would "return to normal" in the second half of 2021, but they remained concerned about the timing of the recovery. Most contacts reported feeling confident that their product offerings were well suited for growth as the economy recovers.

Commercial Real Estate

Commercial leasing conditions in the First District remained mixed, as in the last report. The industrial and lab-space markets were still doing well, while the retail and office-space markets continued to be weak. In the industrial leasing sector, demand outpaced supply in some metropolitan markets, with one contact citing a local vacancy rate below 2 percent. Several contacts reported multiple interested buyers on any for-sale industrial building, with one noting that this has pushed cap rates "shockingly low" (under 4 percent) in some cases. The life sciences sector was also strong; investors continued planning for and building new lab space in and around the Boston area, despite high costs of construction.

In the office market, renewals of expiring leases were almost the only activity, and tenants were willing to pay slightly higher rents in exchange for shorter lease terms. With new activity thin, rents have not yet begun to reflect the downward pressure from increased sublease space. The retail and hospitality markets were still very soft, especially as some areas experienced new restraints in response to COVID-19 spikes. Many contacts predicted that some retail space will be converted to industrial over the next several years.

Most contacts expected the first two quarters of 2021 to be similar to Q4 2020. Until the virus is more controlled and vaccines more widely administered, most commercial respondents said they would try to delay making decisions. While the first half of 2021 looks "bumpy," contacts expected improvements in the second half.

Residential Real Estate

In the First District, the home buying "frenzy" continued in November, with contacts attributing strong buyer confidence to historically low mortgage rates and historically high stock market performance. (Five states and Greater Boston reported changes from November 2019 to November 2020; Connecticut data were unavailable.)

The number of closed sales once again increased from a year ago in all reporting areas, with double-digit increases for all markets except Boston condos. However, severe inventory shortages persisted, with the inventory of homes for sale remaining substantially below a year earlier in all reporting markets except Boston condos, where inventories rose. Low inventory and high demand put upward pressure on prices. For single family homes, the median sale price increased by double-digit percentages in all markets. For condos, the median sale price increased in all markets except Rhode Island, but changes in prices for condos were smaller than for single family homes. Contacts noted that demand for condos has been curbed by buyers' pandemic-related desire for more space at home and less urban settings. Additionally, contacts in both Maine and Rhode Island noted a substantial influx of out-of-state buyers.


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