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

Business activity up, labor demand strong, and contacts optimistic but wary of inflation risks Business activity up, labor demand strong, and contacts optimistic but wary of inflation risks

March 3, 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, March 2, 2022

Summary of Economic Activity

Business activity expanded at a slight to modest pace in recent weeks. Consumer spending on goods, including autos, increased at a moderate pace, but restaurants sales plummeted during the Omicron surge. Manufacturers enjoyed robust demand, and revenues increased slightly on balance. Revenues at staffing firms were mixed but up modestly on average. Office leasing activity gained some momentum, and rents for industrial and life sciences space reached record highs. Home sales slowed further in a return to seasonal norms. Labor demand remained very strong, but employment appeared roughly stable as some firms struggled to hire and/or retain workers. Upward wage pressures remained substantial but eased for some positions. Prices increased moderately on average. Contacts were almost unanimously optimistic for spring, although some mentioned downside risks tied to inflation and supply chain issues.

Labor Markets

First District labor markets remained tight on balance, as upward wage pressures persisted, and employment appeared stable. Headcounts were flat among retail contacts. Restaurant contacts noted a modest improvement in labor supply but did not report on headcounts. Manufacturing headcounts were up by modest to large margins on a year-over-year basis but were mostly stable recently. Manufacturers offered mixed descriptions of the labor market, as some experienced no hiring difficulties and others complained of high turnover or faced a scarcity of candidates. Staffing firms noted that turnover remained elevated at their own firms as well as at client firms. Staffing contacts also said that wages faced strong upward pressure across a wide variety of jobs and skill levels amid rising price inflation. However, wage growth appeared to slow or level off for selected positions and was relatively moderate among manufacturers. Contacts expected robust labor demand to persist but said that wage growth could slow moving forward in light of the substantial wage increases already seen in recent months.


Prices increased moderately on average, but reports varied widely across contacts. Buyers of computer chips complained of "extortive" pricing while other goods makers enjoyed stable input prices. Although some manufacturers held off on raising their prices, those selling directly to consumers said that they had been forced to increase their prices because demand was exceeding production capacity. High freight costs caused one retailer to forgo shipments of otherwise attractive merchandise. Restaurateurs relayed that in the last quarter food input prices increased at their fastest pace in 40 years. Restaurants' menu prices also increased, but incomplete pass-through led to lower profits. According to a New Hampshire auto industry contact, new and used car prices remained very high, but used car prices softened somewhat at recent auctions. Staffing firms' billing rates increased commensurate with increases in pay rates, leaving their margins roughly unchanged.

Retail and Tourism

Contacts reported a strong holiday season and a solid start to 2022 for retail sales, while auto sales increased moderately, and restaurant sales dropped due to the rise of the Omicron variant. Among retailers, higher inventories boosted December 2021 and January 2022 sales at a salvaged-goods chain, and an online goods seller continued to enjoy volume and revenues well above pre-pandemic levels. The latter seller also said that inventories had stabilized somewhat and were expected to normalize further in the coming months. Auto sales in New Hampshire increased moderately in January owing in part to improved inventories of new vehicles, but supplies are not expected to fully normalize until 2023. Sales of RVs defied typical seasonal trends and remained robust throughout the winter. Massachusetts restaurant owners suffered a very challenging winter due to the surge of the Omicron variant in December and January. Sales were weakest in the Greater Boston area while suburban and outlying areas saw fewer disruptions. Nonetheless, a sense of optimism is emerging about the return of restaurant guests in the coming months as the rate of COVID infections declines and food supplies stabilize.

Manufacturing and Related Services

All eight contacts reached this round reported strong demand, but in some cases supply chain issues held back revenue growth, and sales increased slightly on average. Supply disruptions mostly affected production, but some firms' customers cancelled their orders because other suppliers could not deliver. One firm suffered from production delays in January when many workers were out sick with COVID. Most contacts were trying to hire, although one planned to focus on retention after expanding headcounts by a very large margin in 2021. Planned wage increases were low to moderate, but signing bonuses and recruiting fees also boosted labor costs. Contacts reported no major revisions to capital expenditure plans, but some indicated that spending was up due to "catch-up" following limited investment during the pandemic. The outlook was generally positive although some contacts expected supply chain problems to persist or even intensify moving forward.

Staffing Services

Revenues at staffing firms increased modestly on average, as two contacts reported no changes from the previous quarter, one recorded substantial growth, and one experienced a modest decline. Talent acquisition remained a challenge for all firms, especially in filling temporary positions and jobs requiring in-person work. One contact offered bonuses to new hires who stayed in their roles for at least 90 days, and another boosted salary for its own recruiters to improve retention. Scarcity of childcare continued to crimp labor supply, but contacts said they were surprised to have seen relatively little pushback to vaccine mandates. In response to labor scarcity one firm moved to accelerate the placement of available candidates, and another said that the ease of starting remote work had also sped up the hiring process. However, the faster placement pace put more pressure on clients to train and fully vet new hires. Looking ahead, all contacts were optimistic about the coming months in light of the resilience the economy had shown during the Omicron surge and the strong ongoing demand for workers in a variety of roles. Some contacts expressed concern over the inflation outlook, however, and one perceived an increased risk of recession.

Commercial Real Estate

The First District's commercial real estate markets were mostly stable in recent weeks. The life sciences and industrial property sectors remained very strong, even "frothy," as rents reached record levels and vacancies hovered near zero. Pension funds fueled strong investment demand for these sectors, but contacts perceived downside risks to returns. The office leasing market showed some signs of life, with relative strength in the suburbs, but stayed slow relative to historical norms. Multifamily construction increased amid rising rents, but supply and labor shortages caused some delays. Retail market performance varied widely by location and type of business, as outlets that relied on office workers continued to struggle, grocery-anchored centers stayed strong, and experiential retail started to bounce back after an Omicron-induced slowdown. Contacts expected further momentum in office leasing for spring, but large office users are still poised to give up significant amounts of space. The industrial outlook was mixed, as at least one contact expected a slowdown in demand.

Residential Real Estate

Residential real estate sales posted a modest seasonal slowdown in December and January as prices were stable on balance and inventories remained very low. (All New England states except Connecticut reported results.) Closed sales were down over the year (to either December 2021 or January 2022) for both single-family homes and condominiums. Although the decline in single-family sales extended recent trends, the slide in condo sales marked a reversal from the previous report. Several contacts interpreted the latest results as a return to normal seasonal patterns, together with the fact that in late 2020 the market had been unusually busy. Home inventories fell and median prices increased year-over-year in all reporting markets, by robust margins. Those over-the-year changes were mostly on par with the previous report, with the exception that Boston's condo prices posted somewhat slower growth recently. The Rhode Island, Massachusetts, and Boston contacts all anticipate high demand this spring, as many prospective buyers are expecting mortgage rates to increase and are eager to purchase a home before that happens.


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