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

Business activity up slightly amid wage and price increases; outlook positive despite uncertainty Business activity up slightly amid wage and price increases; outlook positive despite uncertainty

January 13, 2022

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, January 12, 2022

Summary of Economic Activity

Business activity in the First District was steady or up slightly on balance. Employment increased modestly and wages advanced at a strong pace. Input pricing pressures stayed high or intensified, and firms' output prices increased moderately. Retailers had mixed recent results but performed well above pre-pandemic levels, while tourism contacts reported modest improvements in activity. Manufacturing results varied from robust revenue growth to large declines in sales. Software and IT services firms enjoyed strong, roughly stable demand. Single-family home sales picked up slightly but remained off of their year-earlier levels, and condominium sales gained further momentum as a lower-priced option. Commercial real estate activity was steady. The outlook was mostly positive, but uncertainty remained high, and the Omicron variant of Covid-19 presented a risk to near-term activity in some sectors.

Employment and Wages

Employment was up modestly on average and wages increased at a strong pace. Headcounts were unchanged among retail and tourism industry contacts, and mixed but flat on balance at software and IT services firms. Among manufacturers, employment was either flat or up by moderate or even robust margins. Three contacts from diverse sectors said that it had recently become easier to hire workers, while others reported that hiring remained difficult but had not deteriorated. Elevated turnover remained a problem for several firms, but one noted that vaccine mandates had not resulted in increased quits. Wages posted strong gains on average, with year-over-year raises ranging from only slight to a robust 10 percent. The outlook for hiring in 2022 was quite varied, as a few firms described moderate-to-aggressive hiring plans while at least one intended to shed workers.


Prices increased moderately on average among the contacts reached this round. Prices were stable on balance at software and IT services firms. Average hotel room rates in the Boston area edged up moderately in recent months and increased sharply on a year-over-year basis. Retailers raised their prices somewhat in recent months in response to rising input costs and robust demand, although one experienced some consumer pushback after its latest price move. Retail contacts said that freight and shipping costs had stabilized at very high levels. Manufacturing contacts reported intense input pricing pressures, with increases as high as 30 percent over the year. Large input price gains pertained to a wide range of commodities, including foam, steel, aluminum, wood, cornstarch, adhesives, and cardboard. Some manufacturers raised their final goods prices by large margins (over-the-year) to compensate for the higher costs but at least one said it was trying not to raise prices.

Retail and Tourism

Retail and tourism contacts offered mostly positive reports. A clothing retailer enjoyed a robust seasonal surge in sales above its already-strong performance in the first 3 quarters of the year, as recent sales exceeded comparable 2020 levels by low double-digit percentages. A furniture seller saw revenue above pre-pandemic levels, but its sales volume dropped in recent months relative to the record-setting levels posted in the summer of 2021. Airline passenger traffic through Boston picked up steadily in recent months, and passenger levels in a recent six-week period were 200 percent higher than in the same period in 2020. (All statements about air travel and tourism were relayed prior to the recent, Covid-related surge in flight cancellations in the US and elsewhere). Passenger levels nonetheless were off by about 25 percent compared with 2019. Retail passengers in January 2022 are expected to show further improvement, but the recovery of international and business travel continues to trail that of domestic leisure travel. Hotel occupancy rates in the greater Boston area also saw further modest gains in recent months, and November's average occupancy rate of 58 percent represented a marked improvement from one year earlier. Retail and tourism contacts expressed a largely optimistic outlook for demand in 2022.

Manufacturing and Related Services

Reports from First District manufacturers were mixed. Two contacts, a semiconductor manufacturer and a supplier of cardboard boxes, continued to record stellar growth in sales on a year-over-year basis, similar to or even better than Q3 results. The cardboard box producer said that its double-digit sales growth would have been even higher if not for supply constraints. Other firms were not as positive. A frozen fish producer suffered large sales declines due to an ongoing supply snafu, a precision parts maker had flat revenues, and a biotech firm suffered a sharp drop in demand. Capital expenditures were revised down in Q4 at two firms but stable otherwise, while spending plans for 2022 were mixed. The outlook was variable, in line with each firm's recent performance, and clouded somewhat by uncertainty regarding inflation, supply-chain concerns, and idiosyncratic issues. The semiconductor contact expected strong growth for the next few years but expressed concern that the desire of many countries to make chips locally could lead to a glut of chips down the line.

Software and Information Technology Services

Software and IT contacts reported stable activity in the fourth quarter and moderate to strong gains in demand on a year-over-year basis. For one firm, however, realized revenues were just flat over-the-year despite increased demand, based on normal lags between bookings and payments. Recent results exceeded expectations at two out of the three firms reached this round. Prices were described as stable, although customer contracts at one firm included automatic cost-of-living increases, and two firms said that shifts towards cloud-based services had led to changes in the mix of prices paid by customers. Changes in profits and margins were mixed and tended to align with revenue growth. Capital and technology spending were consistent with prior plans, but firms had diverse spending trends. Contacts were generally optimistic for 2022 as a whole, but rising COVID-19 infection rates and shutdowns in Europe presented downside risks for the near term.

Commercial Real Estate

The First District's commercial real estate markets were stable in recent weeks. Life sciences space in Boston continued to face very high demand and very low availability, spurring moderate increases in new construction and office-to-lab conversions. The industrial property market also continued to thrive, and despite low inventories construction was limited to the activity of a few large users. Retail leasing was still weak, especially for smaller stores relying on urban foot traffic, although sales at restaurants and experiential retail got a modest seasonal boost and high-end malls showed relative strength. Several contacts noted an uptick in conversions of retail space for warehousing uses. In the office sector, leasing activity remained scant in most areas but picked up somewhat in Rhode Island, and vacancy rates and rents were unchanged. Some contacts noted that "contrarian" investors increasingly sought to purchase top-quality office product. Regarding the outlook, contacts were optimistic on balance but expressed concerns about high inflation and rising interest rates. Contacts also speculated that premier office properties could see robust leasing demand in 2022 but that generic offices faced grim prospects, and some perceived that the Omicron variant of COVID-19 posed at least a transitory risk to activity moving into 2022.

Residential Real Estate

Residential real estate activity was stable or up slightly in November from earlier in the fall. Five New England states and Boston reported results; Connecticut data were unavailable. As earlier in the fall, closed sales of single-family homes were down sharply on a year-over-year basis in most markets (except Boston), reflecting softer demand compared with historic pandemic highs. Nonetheless, year-over-year sales improved slightly from the previous reports and sales were high for the typically slow month of November. In Boston, single-family sales rebounded to post slight over-the-year gains. Median sales prices of single-family homes were roughly flat but remained higher than year-earlier levels by robust margins. Inventories fell further and are down by large margins from November 2020. The Rhode Island and Massachusetts contacts said that high prices and low inventories in the single-family market pushed many first-time buyers into the condo market, and in fact condo sales increased notably in most reporting markets. One contact remarked that "with the threat of climbing interest rates and rising rents, buyers are focused on securing a home with a steady mortgage payment to help stabilize expenses."


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