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

Business activity up modestly, but results mixed overall, and outlook marked by uncertainty Business activity up modestly, but results mixed overall, and outlook marked by uncertainty

December 2, 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, December 1, 2021

Summary of Economic Activity

Business activity in the First District expanded at a modest pace on balance, but results were somewhat mixed. Retail sales softened slightly, while restaurant sales rebounded in September following weakness in August attributed to the Delta variant surge. Manufacturers saw moderate sales gains in the third quarter, and most staffing firms saw robust increases in revenues. Sales of single-family homes softened further relative to their frenzied recent pace. Commercial real estate contacts expected office leasing to pick up in early 2022 as more firms require in-person work, but footprints are set to fall. Labor demand was robust but hiring activity was modest in light of labor scarcity. Average price increases were moderate. The outlook was mostly positive, but contacts expressed uncertainty concerning inflation, supply chain disruptions, and the impact of vaccine mandates on the labor market.

Employment and Wages

Labor markets remained very tight and wage increases ranged from moderate to very strong. Hiring advanced at a modest pace on average but increased churn—attributed in some cases to vaccine mandates—put a drag on headcounts. Manufacturing contacts managed to hire some workers despite the tight labor market, albeit with difficulty, and the inability to hire the desired number of workers was said to hold back growth at one firm. One manufacturer used large starting bonuses to attract workers rather than raising starting salaries, and others enacted modest pay increases. Labor scarcity led some restaurants and retail outlets to cut back hours of operation. Staffing firms' pay rates increased by moderate to large margins from the second quarter, in part to keep up with hefty starting wage increases by some large employers. Also, staffing firms faced increased competition for recruiters from client firms, putting moderate upward pressure on recruiter salaries.


Information on pricing was relatively scarce but suggested that retail and manufacturing prices increased at a moderate pace on average. At Massachusetts restaurants, menu prices increased at an above-average pace that was nonetheless not enough to cover large increases in food, labor, and other costs, leaving profit margins somewhat lower. Manufacturers enacted slight-to-modest price increases, and complaints about input prices were surprisingly muted. One manufacturing contact said that input price pressures had increased recently but that his firm had mostly offset them with efficiency improvements and had raised their own prices only slightly.

Retail and Tourism

Retail contacts said that sales remained strong in the third quarter, but that performance had softened somewhat in comparison with either pre-pandemic or year-ago levels. Massachusetts tourism and hospitality contacts reported a rebound in sales in September and October following COVID-related weakness in August.

A discount and salvaged goods retail chain reported strong September and October sales that exceeded those of the same period in 2019 by about 3 percent, marking a slight decline in performance from its summer sales numbers. However, sales at the firm's outlets along the Canadian border increased modestly as restrictions on cross-border commerce eased. An online home-furnishings retailer said that recent sales remained well above pre-pandemic levels but declined relative to the very strong numbers of fall 2020.

Restaurants across Massachusetts experienced higher recent sales after a late-summer dip in response to renewed COVID outbreaks and restrictions. Despite improving for most of 2021, restaurant activity in Boston remained well below pre-pandemic levels. A contact on Cape Cod reported a strong fall season for hotels, restaurants, and main-street retail, up from weaker activity in August that was seen as fallout from a COVID cluster in July. Large wedding venues on the Cape continued to bounce back from the pandemic, with advanced bookings currently extending into 2024. Nonetheless, a lack of conferences and other large group travel has continued to weigh on the recovery.

Manufacturing and Related Services

First District manufacturing contacts reported very strong sales in the 3rd quarter of 2021, although only three firms were reached this round. Two firms saw moderate-to-strong increases in revenue from the second quarter, including one with revenues at an all-time high, and one had roughly steady sales. Revenue gains reflected increased volume rather than higher prices. One manufacturer posted a year-over-year decline in sales but mainly because it had seen extraordinary sales in 2020Q3, and all enjoyed revenues that exceeded their respective pre-pandemic levels. Nonetheless, labor shortages and supply chain issues were said to hold back sales in relation to demand. One owner said that if he could hire as many workers as he needs to fulfill demand, he could finally return to his peak sales levels from before the 2007-2009 recession. Capital expenditure plans were unchanged. The outlook remained very positive on balance, but one contact expressed increased uncertainty related to ongoing supply chain disruptions.

Staffing Services

Most staffing firms reached this round saw moderate to very large increases in revenues in 2021Q3 from the previous quarter, but one firm reported lower revenues, citing difficulties in filling manufacturing and light industrial positions. All firms described labor markets as very tight, especially for entry-level roles, and the share of direct hires increased relative to temporary positions. Factors seen as holding back labor supply included childcare and family care obligations, rising wage demands, and some workers' reluctance to comply with vaccine mandates. Contacts also reported increased attrition in response to vaccine mandates. Most contacts were optimistic, believing that robust labor demand will continue to drive strong performance at their businesses, but one firm was less sanguine in light of its weak recent results. Contacts held mixed views about the potential impact of vaccine mandates moving forward, with some seeing them as a major threat to labor supply and others expecting only temporary disruptions.

Commercial Real Estate

Commercial real estate markets remained mixed and fundamentals were mostly unchanged. The life sciences and industrial sectors continued to enjoy very strong demand for both leasing and investment, as rents and property values edged higher. Retail leasing activity was mixed, and investment in grocery-anchored retail increased moderately. In the office market, leasing volume was sluggish but improved slightly, and is expected to pick up further in early 2022 based on recent signals from tenants. However, the extent to which footprints will be reduced in any renewed leases remains highly uncertain. Office vacancy rates were flat in most submarkets but increased slightly in Connecticut. Office rents faced moderate downward pressure in Rhode Island but fell mainly through increased concessions rather than cuts in asking rents; elsewhere rents were roughly flat. Construction activity was stable and mostly limited to the life sciences sector and warehouse space. Commercial real estate lending activity slowed slightly, a move attributed to interest rate uncertainty. Most contacts were optimistic, but the outlook was clouded by uncertainty about office space demand, inflation, and interest rate movements. With many firms set to return to the office in January 2022, contacts expected greater clarity to emerge then about firms' space requirements.

Residential Real Estate

Home sales slowed in September and October amid continued low inventory and high prices in New England's residential real estate markets. New Hampshire reported changes from October 2020 to October 2021. All other areas provided changes from September 2020 to September 2021. Connecticut data were unavailable.

While median sales prices are higher and inventories lower year-over-year in all reporting areas, both indicators are little changed from the previous report. For single family homes, closed sales fell by moderate to large margins, both on a year-over-year basis and compared with late summer results. Condo sales increased year-over-year in Massachusetts and Boston, representing a substantial acceleration in sales activity from the previous report. Contacts remarked that many buyers turned to the condo market after being priced out of the single-family home market. However, in the remaining condo markets, sales activity slowed in recent months and over-the-year. Several contacts remarked on the overall "cooling" of sales activity relative to the frenzied demand seen throughout the pandemic but noted that sales and prices were still historically high.


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