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

Business and employment expand modestly, optimism tempered by recession worries Business and employment expand modestly, optimism tempered by recession worries

September 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, Sept. 7, 2022

Summary of Economic Activity

Business activity expanded at a modest pace on balance, led by solid revenue growth among retailers and manufacturers and robust tourism activity. In contrast, commercial real estate activity was flat and home sales fell, developments attributed in part to higher interest rates. Labor markets remained very tight, and employment increased only modestly despite above average (but stable) wage growth. Labor scarcity held back revenue growth at staffing firms and led to reduced hours at some Massachusetts restaurants. Firms' output prices increased moderately on average, but several contacts noticed a stabilization of input prices such as for wholesale food items. Also, freight costs eased owing to a reversal of earlier fuel surcharges. Retail, hospitality, and manufacturing contacts were mostly optimistic, but the real estate outlook worsened and several contacts in diverse businesses perceived that the risk of recession remained elevated.

Labor Markets

Employment increased modestly and wage growth held steady at an above-average pace. Although headcounts were flat in most cases, two manufacturers managed to boost their staffing levels by moderate and large margins, respectively. Across sectors, most contacts said that attracting and retaining workers remained very challenging, even after having raised their wage offers for new and/or existing employees. However, selected contacts in the retail sector experienced a modest decline in attrition. The dearth of labor supply held back revenue growth at staffing firms and caused some restaurants to reduce their hours. Contacts said that nonwage incentives, such as remote work options, flexible schedules, and career training, remained important for attracting and retaining employees. One manufacturer experienced high absenteeism rates among workers dealing with substance abuse problems. Contacts who commented on the labor outlook expected labor shortages to persist, but not worsen, moving forward.


Output prices increased moderately on average, but input pricing pressures were mostly stable. All but one manufacturer raised its output prices recently, with increases ranging from 2 percent to 12 percent. One retailer posted a moderate price increase in the second quarter in response to higher costs for labor and a steep increase in propane costs following a contract renegotiation. Restaurant menu prices mostly stabilized but remained up 7 percent on average from one year ago, as wholesale food prices levelled off. Freight and shipping costs subsided following a reduction in fuel surcharges that had been added in the spring, and contacts said that supply chain issues had either eased or at least not intensified in recent months. Hotel room rates climbed at a robust pace that was nonetheless more moderate than that of earlier in the year. Despite the stabilization of cost pressures, some contacts said that further price increases were possible moving forward, as their output prices tended to adjust to cost increases with a lag.

Retail and Tourism

Retail and restaurant contacts reported moderately higher sales, while hotels enjoyed a summer surge that exceeded even their optimistic expectations. An online retailer had a modest uptick in sales and recaptured market share lost earlier this year from supply chain woes. A salvage store enjoyed a substantial increase in sales, but high costs kept profits flat. A Massachusetts restaurant industry contact said that sales increased solidly throughout the state amid renewed tourism activity, as summer customers appeared undeterred by earlier menu price hikes. Downtown Boston restaurants saw relatively muted growth, a fact attributed to the still tepid rebound in business travel. Cape Cod restaurants faced very high demand, but labor shortages forced many to reduce their operating hours. Hotel occupancy rates in the Boston area climbed rapidly in recent months, approaching pre-pandemic levels despite reduced business travel. The outlook was mostly optimistic, but concerns about ongoing inflationary pressures and labor shortages persisted.

Manufacturing and Related Services

Most First District manufacturing contacts reported moderately stronger sales on balance. The semiconductor industry continued to enjoy very strong revenue growth. A furniture maker said that his earlier pessimism turned out to be groundless: demand for his firm's goods has been exceptionally strong, with in-store traffic back at pre-pandemic levels and online sales well above pre-pandemic levels. The only firm to report weaker sales, a veterinary care supplier, explained that veterinary clinics were cutting their hours to relieve overworked staff. While all contacts experienced ongoing stresses in the supply chain, some said that such issues had eased, and one reported that logistics firms had stopped levying surcharges. None of our contacts reported any revisions to their capital expenditure plans. The outlook was mostly positive, with two exceptions. The veterinary supplier expected demand to continue to soften back to pre-pandemic levels, and a capital equipment manufacturer foresaw weaker demand in the third quarter owing to overall pessimism about the economy.

Staffing Services

First District staffing contacts reported no significant revenue changes in 2022Q2 from the previous quarter, as revenue growth was reportedly held back by weakness in labor supply. Demand for labor continued to outpace supply across a variety of industries and experience levels, and wages remained elevated throughout the region. Contacts characterized the labor market as extremely competitive and fast-paced, with candidates being placed in a matter of days. One contact noted an increase in pre-college-graduation recruitment activity for some entry-level jobs. According to another contact, any number of snags could become an immediate dealbreaker for a job seeker, such as the need to relocate or to work in-person rather than remotely. In response to the tough hiring environment, staffing firms made renewed efforts to reach new job candidates and/or to accelerate the hiring process, such as by boosting their advertising activity and offering referral bonuses. Some contacts expressed concerns about an impending economic contraction, signaled both by macroeconomic conditions and by recent layoffs at a large Boston-area employer, but one was hopeful for a mild slowdown that would normalize the labor market.

Commercial Real Estate

First District commercial real estate markets were mostly stable. Contacts reported a largely static retail leasing market, with little change in rents or demand for space. Rents for industrial space remained quite high, with vacancy rates at historic lows, as scarce land and labor constrained the addition of new supply. Demand for high-square-footage industrial space continued to outstrip supply, particularly in urban areas. Vacancy rates in office buildings remained elevated throughout the region, and lease rates fell or held steady, as working from home remained prevalent. Contacts said that office rents were flat but that concessions such as high renovation budgets had become standard. Higher interest rates deterred borrowing for new construction and acquisitions. Equity contributions on new loans increased, as investors sought to avoid lower-yielding options. The outlook was generally pessimistic. In the retail and industrial markets, contacts expected high borrowing and building costs to continue to deter construction activity. Several contacts expected office leasing activity to pick up by the end of the year but cautioned that such activity would result in significant tenant downsizing.

Residential Real Estate

Higher interest rates cooled home-buying demand, leading to fewer closed sales in the First District's residential real estate markets. (Vermont reported year-over-year changes for June 2022 and all other areas reported changes for July 2022. Connecticut data were unavailable.) Closed sales fell sharply over-the-year in all reporting markets, in a notable weakening from the previous report. Contacts attributed the decline in sales to rising mortgage rates, coupled with high price inflation that crimped buyers' budgets. Home prices increased over-the-year in all reporting markets. For single-family homes, the over-the-year price increase was smaller than in the previous report, and contacts anticipated that prices would continue to level off into the fall. In condo markets, the price increases were slightly larger than or on par with those from the previous report. Since the spring, inventories were substantially lower in Rhode Island, Maine, and Vermont, but moderately higher in Massachusetts (including Boston proper) and New Hampshire. Several contacts described a return to pre-pandemic normalcy in the market after the home-buying "frenzy" of the past two years.


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