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

Activity up slightly amid price and wage increases, but more contacts expect recession Activity up slightly amid price and wage increases, but more contacts expect recession

June 8, 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, June 1, 2022

Summary of Economic Activity

Economic activity in the First District increased slightly on balance. Employment increased slightly as many firms struggled to hire and retain workers, and labor shortages contributed to above-average wage growth. Price inflation persisted at a moderate to fast pace. Retail contacts posted flat or somewhat better sales, while restaurants saw slight revenue gains, and tourism contacts expect record-breaking occupancy rates this summer. Manufacturers reported a wide range of results, and some were hurt by softer demand from Europe and China. Business at staffing firms was restrained slightly by labor scarcity and changes in demand composition. Home sales were steady at a slow pace amid a slight seasonal uptick in inventories, and commercial real estate activity was healthy but offered some signs of a slowdown. While many contacts remained optimistic, an increasing number expected a recession by year's end.

Labor Markets

Employment was flat or up slightly among First District contacts amid persistent hiring and retention difficulties, and labor scarcity fueled above-average wage increases. Restaurants faced acute worker shortages and responded with sharp wage increases. Tourism industry contacts face a looming shortage of seasonal workers owing to an ongoing lack of temporary work visas, and some are planning to cut capacity (such as restaurant seating) as a result. In the retail sector, worker headcounts were flat, hours were down, and wages increased moderately on average as some retail firms reportedly poached employees away from childcare positions. In the New Hampshire auto industry employment was flat and wage pressures, previously muted, started to intensify. Manufacturers mostly had strong labor demand but only a few managed to increase their staffing levels, as all complained that hiring was difficult, and turnover was high. Manufacturing wage increases were moderate to strong, and some sought to compensate workers for inflation with one-time bonuses rather than—or, in some cases, on top of— permanent wage increases. The hiring outlook was mixed, as some contacts expected labor market tightness to ease, and others expected persistent labor shortages.


Prices increased at a moderate to robust pace at most contacted firms, although pricing pressures eased for used cars in response to increased inventories. Restaurants faced steep food price increases, especially for meats, eggs, and oils, and incomplete pass-through to menu prices resulted in weaker profits. A salvage retailer exposed to high freight costs raised its own prices by moderate margins. In advance bookings, hotel room rates on Cape Cod reached record highs. Most manufacturers enacted above-average price increases to defray inflation in the prices of a variety of inputs, including semiconductor chips, plastics, glass, energy, logistics, and labor. Yet the war in Ukraine still lends uncertainty to the pricing outlook.

Retail and Tourism

Retail and restaurant contacts reported flat to moderately higher sales, and tourism contacts enjoyed robust summer bookings activity. An online retailer had flat recent sales but said that supply chain pressures eased. A salvage store enjoyed a better-than-expected increase in recent sales but rejected some potential inventories over high freight costs. A contact in the New Hampshire automobile industry reported a moderate increase in used car inventories but also observed that supply chain issues in the new car industry had spread to a broader set of auto manufacturers. A Massachusetts restaurant industry contact reported a slight recent increase in sales but said that cost pressures had crimped profits. Boston restaurants, which have lagged suburban restaurants in the recovery, were happy to see healthier sales thanks to the ongoing return of office workers and travelers to the urban core. Some Cape Cod restaurant owners plan to curtail service this summer due to labor shortages, but hotels and B&Bs on the Cape are planning for record-breaking occupancy and room rates based on advance summer bookings. The outlook was a mix of optimism and concerns about ongoing inflationary pressures and labor shortages.

Manufacturing and Related Services

Contacts offered mixed results. Three of the seven firms reached this round reported robust increases in sales, one had strong but stable sales, and the others saw slightly to moderately weaker sales. Among the firms with the strongest results, a manufacturer of laboratory equipment said that business was up across all product lines except those related to COVID testing, and a semiconductor manufacturer continued to enjoy record-breaking sales growth. At the other end, a garden hose maker lamented that supply chain issues were driving up prices and that retail customers increasingly balked at paying them. Two contacts experienced recent softness in overseas sales, which were hurt by the war in Ukraine and lockdowns in China. Firms continued to invest despite higher interest rates. The outlook was mostly unchanged and mostly positive, but the Ukraine war presented downside risks for some contacts, and one perceived a high chance of recession in the next six months.

Staffing Services

Among the three staffing firms reached this round, two experienced slight and sharp revenue declines, respectively, and another enjoyed a moderate uptick in receipts. All described the labor market as extremely tight, yet also shifting in terms of demand composition. For example, positions at COVID testing sites have mostly evaporated, a shift that explained the large decline in business at one firm. Although upward wage pressures persisted for most positions, some employers sought to reverse "COVID wage premiums" but faced resistance from workers seeking compensation for inflation. Competition for scarce labor was intense, particularly in specialized roles, as workers were reportedly "besieged" with offers. Contacts reported high rates of temp-to-conversions and noted that salaries for junior level professionals increased very steeply from a year earlier. Looking ahead, two firms predicted that their revenues would rise as conditions continued to normalize, and one worried that the shortage of workers would restrain their business. The state of the national economy was a point of concern, although two noted that worsening macroeconomic conditions could alleviate the worker shortage.

Commercial Real Estate

Commercial real estate activity in the First District was steady at a healthy level, but signs of a potential slowdown became more prominent. Investors were reportedly slower to spend, suggesting they expected deal terms to turn in their favor. Industrial activity, while still very strong, slowed further since last round as big players sought less space than they did at the height of the pandemic. Higher-end and suburban office spaces enjoyed improved leasing demand, but activity remained limited for downtown and older office buildings, and uncertainty concerning return-to-work plans lingered. Contacts described retail activity as "chugging along" at a steady pace thanks to the release of pent-up consumer demand, but some wondered how long such demand would hold up. Apartment rents climbed further at a fast pace, but in other sectors contacts reported no significant changes in rents or vacancy rates. Most contacts expressed greater pessimism about the outlook for commercial real estate than they did last round, and only one remained very positive. Several perceived that the Fed's interest rate increases had already slowed the economy, and a few contacts expected a recession by year's end.

Residential Real Estate

Residential real estate sales in four New England states (Connecticut and Vermont offered no data) held roughly steady at a slow pace in April, despite slight seasonal improvements in inventories. Closed sales were down over the year for single-family homes and condominiums, at about the same pace as in March. Median sales prices increased over the year in all reporting markets, at rates that were on par with March results for single-family homes and moderately higher for condos. Year-over-year, inventories were down in all reporting markets, but by slightly smaller margins than in the previous report. All contacts mentioned that higher mortgage rates have created affordability issues for many prospective buyers, cooling demand. The Massachusetts contact noted again that competition was highest for lower-priced homes and observed that increasing numbers of buyers are shifting to the condo market after being priced out of the single-family market.


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