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, March 3, 2021

Summary of Economic Activity

Economic activity was decidedly mixed in the First District, with moderate growth on balance. Manufacturers reported strong to very strong results, while restaurants and hotels experienced very weak demand. Retail sales were robust across a variety of outlets, and auto sales made a sharp rebound in late 2020. Performance at staffing firms was mixed but most saw growth that exceeded expectations. The commercial real estate market was split between very strong activity for industrial and laboratory space and sluggish to very weak demand for office, retail, and hotel properties. Residential real estate sales and prices continued to climb but low inventories remained a problem. The outlook took a more optimistic turn among many contacts in response to the vaccine rollout and the pending arrival of warmer weather.

Employment and Wages

According to reports from staffing firms, labor demand was strong from manufacturing, legal services, health care, and scientific and technical firms, while the market for lower-skilled services workers exhibited significant slack. A staffing firm described the markets for health care and scientific/technical workers as being at full employment, making it difficult to find qualified workers in those fields. Among manufacturing contacts, all but one planned to add workers. Most of those were engaging in light to modest hiring but two planned on dramatic increases in headcounts, including a life sciences firm hoping to hire 12 to 15 times as many workers in 2021 as in a typical year. Several manufacturers reported having difficulties finding qualified workers and two also said that absenteeism was a problem. About half of manufacturing contacts remarked that labor costs had increased and a few had raised or were planning to raise salaries by around 3 percent in 2021. Staffing firms said that wages were up for highly skilled temporary employees and that both the duration of temporary employment and the conversion rate from temporary to permanent employment had increased for high-skilled occupations.

Prices

Pricing reports were mixed. Some manufacturers reported higher nonlabor input prices, including one who faced extreme upward pressure on petrochemicals prices due shortages that were exacerbated by the winter storms in the south-central US, two who said that shipping costs had increased substantially, and another that paid more for gold. Nonetheless, none of those contacts planned to raise their output prices. Most other manufacturing contacts experienced level (nonlabor) input prices, but two had seen a recent easing of costs. One manufacturer planned to increase its output prices on the strength of demand for its products. Outside of manufacturing the only report on prices was that daily room rates at Boston-area hotels were down 40 percent from one year ago.

Retail and Tourism

Retail contacts noted continued strength in sales in early 2021 in automobiles, RVs, winter sports equipment, salvaged goods, and online sales of home furnishings. Hospitality contacts said that restaurant sales and hotel stays slumped further during the winter months amid the renewed surge in COVID-19 cases. Nonetheless, the same contacts were optimistic for the first time since the pandemic began, as they expected that more widespread vaccine distribution and warmer weather would result in a release of pent-up demand in the spring and summer. All Boston-area conventions originally scheduled to take place by summer 2021 have been postponed.

Automobile sales in 2020 broke records at many dealerships despite steep declines last spring. Stronger-than-expected auto sales have exacerbated the pre-existing shortage of semiconductor chips and could crimp an otherwise strong 2021. A salvaged goods chain reported strong sales despite persistent weakness in stores near the Canadian border. Online sales of home furnishings remained robust.

Manufacturing and Related Services

All ten firms contacted this cycle reported higher sales, and three said their company had seen its best performance ever in recent quarters. Semiconductor industry contacts reported exceptionally strong demand, coming from both the auto industry and manufacturers of personal computers and other electronic devices. Combined with supply-chain hiccups that began in 2019 and were exacerbated by the pandemic, the surging demand has led to shortages in the chips used in automobiles in particular. Other manufacturers, producing everything from almond milk to bulk chemicals to veterinary diagnostics to lab equipment, also reported very strong sales.

Most contacts planned to increase their capital expenditures in 2021. Some of these increases were intended to compensate for COVID-19 related disruptions to investment activity in 2020. Surprisingly, however, some contacts revised their capital expenditure plans down for 2021 because they had completed more investment in 2020 than originally expected. Contacts were generally optimistic about 2021, despite expressing uncertainty about the evolution of the pandemic and vaccinations. One contact expressed concern that some of the demand increases they had experienced in 2020 would recede along with the pandemic. For example, a veterinary care products maker said that COVID-19 had led people to spend more time with pets and to adopt new ones, a pattern that could reverse in the coming months.

Staffing Services

A few New England staffing firms reported negative year-over-year revenue growth, but the majority experienced stronger-than-expected growth in Q4 of 2020. The demand for labor was strong in most sectors, including manufacturing and legal services, but one contact noted a surplus of lower-skilled services workers. Both bill and pay rates increased for most firms, but without any substantial changes to mark-ups, as client organizations were willing to pay higher wages. In addition, most contacts reported incurring greater costs in order to attract candidates, such as expanding their advertising efforts and/or hiring additional recruiters. Contacts were unanimous in expressing greater optimism about the coming quarters, as they expect that vaccine rollouts will allow more people to reenter the workforce.

Commercial Real Estate

Commercial real estate conditions in the First District were mostly unchanged since December. Throughout the District there remained significant disparities between the industrial sector—which saw robust demand and extremely low vacancy rates—and the retail and hospitality sectors, both of which continued to register very weak demand and declining property values. The life sciences industry, concentrated in greater Boston, extended its boom in the leasing and construction of lab space. Although office leasing was mostly sluggish, a Providence contact reported a slight uptick in leasing activity that was noteworthy in that tenants expressed interest in longer-term leases. The same contact noted that concessions on Providence office space had increased, lowering effective rents if not asking rents. Contacts expect demand for office space to remain muted or to improve modestly in the first half of 2021, and to improve significantly in the second half. Hotel demand is expected to rebound in mid-to-late 2021 as well. Nonetheless, contacts are forecasting a permanent decrease in office occupancy of 20 percent or more in the post-pandemic economy, and a glut of lab space in greater Boston remains a risk at the two-to-three-year horizon.

Residential Real Estate

The residential real estate market in New England showed no signs of slowing in December and January. (Rhode Island and Vermont reported over-the-year changes to December 2020; Massachusetts, Boston, New Hampshire, and Maine reported over-the-year changes to January 2021; Connecticut data were unavailable.) The number of closed sales increased in all reporting areas. However, the inventory of homes for sale continued to fall well below year-earlier levels in all markets except the Boston condo market, which saw an uptick in inventory. The median sales price rose in all markets, but the increase was greater for single-family homes than for condos. Contacts from Massachusetts, Rhode Island, and Maine saw high numbers of out-of-state buyers, especially for homes in vacation communities. The Massachusetts contact said low interest rates and flexible work arrangements had likely provided a boost to demand for vacation homes.

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.