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

Outlook cautiously optimistic even as firms face ongoing supply disruptions, labor scarcity Outlook cautiously optimistic even as firms face ongoing supply disruptions, labor scarcity

October 27, 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, October 20, 2021

Summary of Economic Activity

Business activity in the First District expanded at a modest to moderate pace. Software and IT firms posted moderate revenue gains on balance. Retail sales were stable or up modestly and easily exceeded pre-pandemic levels; demand for new and used autos continued to outstrip limited supplies. Air travel and hotel occupancy improved but stayed well below pre-pandemic levels. Manufacturers saw mixed recent results but most reported revenue gains on a year-over-year basis. Sales of single-family homes softened, but that may reflect the resumption of normal seasonal patterns following an unusual 2020, as home prices continued to climb. Commercial real estate markets were stable but the outlook for office leasing remained uncertain. Wages increased moderately amid widespread labor scarcity. Retailers and manufacturers posted moderate to steep price increases amid ongoing supply disruptions. The outlook was cautiously optimistic.

Employment and Wages

The labor market remained tight across sectors. At several businesses, competition for new hires was intense, leading to robust increases in starting wages, new signing bonuses, and increased willingness to train, but one firm was not planning to increase wages despite facing hiring challenges. Wages were on the rise for existing workers as well, as a few firms planned for larger merit increases in 2022 and at least one offered retention bonuses as well as non-wage perks such as flexible work arrangements. In an exception, one manufacturer found it easier to fill positions recently than in the first half of the year. Manufacturing contacts reported higher labor turnover that some attributed to the lagged effects of the pandemic, and that others had seen in response to vaccine mandates—although one firm said that its vaccine mandate had not caused any quits. Most software contacts experienced normal turnover, however. Headcounts were mixed but in most cases were either flat or down, as turnover and hiring difficulties left firms below desired staffing levels.


Prices were flat at software and IT firms but generally increased among manufacturing and retail contacts, in some cases by large margins. A furniture retailer enacted price increases of over 30 percent since February 2021, driven by increased shipping and materials costs. An apparel contact increased its usage of air freight—historically a very costly way to transport goods—as an offset to skyrocketing shipping costs and delays. New and used car prices climbed further, as demand for autos continued to outstrip inventories and the chip shortage persisted. Hotel room rates increased moderately but remained 27 percent lower than in 2019. Manufacturers faced increased input prices—in the 10 to 30 percent range on a year-over-year basis–and two-thirds of firms raised output prices in the third quarter by moderate to robust margins, while the remainder held prices firm. Software contacts reported no changes in prices other than increases that were built into existing contracts, but one company is considering making price changes in 2022.

Retail and Tourism

First District retailers reported ongoing strength in sales in the third quarter of 2021. A furniture seller enjoyed record-setting revenue this past summer despite a modest decline in units sold from the second quarter, outcomes that reflected the roughly 30 percent increase in the seller's prices since February. A clothing retailer recorded recent sales that exceeded its comparable pre-pandemic levels by low double-digit percentages, amid strength in both online and in-store sales despite a recent decline in foot traffic at its shops. Sales of both new and used automobiles held steady at a robust pace.

Travel industry respondents reported that airline passenger traffic through Boston picked up steadily in recent months, and in August and September was off by "only" about 35 percent compared with the same months in 2019. Scheduled passengers in October are expected to narrow that gap further, although international and business travel continue to trail domestic leisure travel. Hotel occupancy rates and room rates in the greater Boston area also saw further modest improvements in recent months. Occupancy rates in August averaged around 65 percent, the highest rate since the start of the pandemic, despite still falling short of 2019 levels by about 20 percentage points.

Manufacturing and Related Services

Manufacturers reported mixed revenue performance. Two saw modest declines in recent sales, two had stable results, and two registered at least modest revenue increases. Most contacts nonetheless said that sales were higher than they were one year ago, and most had sales above pre-pandemic levels. Most contacts continued to complain of supply-chain disruptions that either dulled recent sales or threatened to crimp future business. These included three firms that faced production delays and two that had trouble keeping inventories at their desired levels (due to input shortages as well as robust demand). Capital expenditures were stable at high levels, with no major revisions to spending plans moving forward. The outlook remained mostly positive, but some faced ongoing risks related to supply-chain issues.

Software and Information Technology Services

Three out of four software and IT contacts in the First District reported higher sales in the third quarter, by modest to very large margins. Two contacts said that demand for their products enjoyed an ongoing boost from firms' increased reliance on virtual business formats during the pandemic, shifts that were seen as largely permanent, but one firm said that pandemic-related supply issues presented an ongoing drag on their business. On a year-over-year basis revenues were up at two firms and were stable or down modestly at two others. Labor shortages threatened to delay the fulfillment of orders at one firm, and another reported increased wage pressures for new hires. Capital spending was mixed across firms—one was spending less after switching to less capital-intensive technologies, another was ramping up investments to tap new markets, and others had stable spending. Contacts were mostly optimistic looking ahead, but two perceived that COVID-19 presented ongoing risks to economic activity.

Commercial Real Estate

Commercial real estate activity in the First District was mixed across submarkets and mostly unchanged in recent weeks. The industrial and life sciences markets continued to enjoy strong leasing demand, with rents steady at high levels and very low vacancy rates. The life sciences market in Boston has maintained near-zero vacancies. Office leasing was flat at a sluggish pace, with mostly short-term lease renewals, as the Delta variant surge caused delays in return-to-office dates and added to uncertainty. Contacts still expect office tenants to reduce footprints permanently as they pursue hybrid work moving forward, but the size of such reductions remains unclear. Office rents were mostly flat and vacancy rates were flat or up slightly. Retail leasing activity remained weak in Boston and Connecticut and comparatively strong in Maine and Rhode Island. Grocery-anchored and experiential retail continued to outperform other categories. The lending market for commercial real estate stayed highly competitive, driven by banks and institutional investors flush with capital. Investment demand was robust across multiple markets, excepting office, but some contacts forecasted an uptick in office sales in 2022. The outlook for leasing in the weaker segments (big box retail and office) hinged on the resolution of uncertainty over the course of the virus in the coming months.

Residential Real Estate

Low inventories and upward pricing pressure persisted in the residential real estate markets of the First District in August. Over-the-year changes to August 2021 were reported for all but two New England states; data from Connecticut and Vermont were not available.

As in the previous report, median sales prices increased, and inventories fell year-over-year in all reporting areas. Sales of single-family homes were down year-over-year, indicating a slight deceleration in activity from July. While condo sales once again increased year-over-year in Rhode Island, Massachusetts, and Boston, condo sales fell over-the-month in August in Massachusetts and Boston and fell over-the-year in New Hampshire and Maine. All contacts found the declines in sales noteworthy, and the slowdown was attributed to a combination of buyers' frustrations over high prices and low inventories as well as to increased vacation-taking compared with August 2020.


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