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

Business activity up slightly, but real estate markets weaken and outlook turns more pessimistic Business activity up slightly, but real estate markets weaken and outlook turns more pessimistic

October 24, 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, Oct. 19, 2022

Summary of Economic Activity

Business activity in the First District was up slightly on balance, and employment increased modestly. Wage increases were moderate on average, but wages stabilized in many cases. Prices were mostly flat, and many contacts noted an easing of cost pressures. Travel and tourism contacts enjoyed robust summer activity. Retail revenue growth slowed modestly or missed expectations but did not turn negative. Demand slowed on balance among manufacturers, although revenues still grew in most cases owing to earlier price increases; demand for semiconductor chips fell precipitously, however. Commercial real estate activity slowed moderately, and warning signs flashed on the financing side. Home sales remained down sharply on a year-over-year basis as home prices levelled off. The outlook turned more pessimistic, as recession fears spread, but many contacts remained at least cautiously optimistic for their own businesses.

Labor Markets

Employment was up modestly, and wage growth was mixed. Labor markets remained tight but hiring and retention difficulties abated for some contacts and were stable, if still elevated, for most. Travel industry contacts engaged in a limited amount of hiring and their headcounts were roughly stable at desired levels. One retailer increased headcounts moderately in anticipation of a strong holiday season, and mostly reached their hiring targets. Manufacturers engaged in modest hiring on balance, but one instituted a hiring freeze in anticipation of a 2023 recession. Among software and IT services contacts headcounts increased moderately, and all but one contact experienced decreased turnover (another saw higher attrition). Hospitality industry contacts reported average wage increases of 15 percent from a year earlier, with most of the growth occurring in recent months. Software and IT firms held wages steady or offered selected wage increases and bonuses, rather than permanent raises for all. A clothing retailer paused wage increases, having implemented substantial raises earlier in the year, but expects to offer signing bonuses to attract more seasonal hires. Manufacturing wage growth ranged from flat to above average. The hiring outlook was mixed, and some contacts expressed concerns about adding too many workers in the lead-up to a possible downturn.


Prices were mostly stable, with isolated exceptions. A clothing retailer posted high single-digit markups in response to earlier cost pressures. Average nightly hotel room rates in the Boston area fell roughly 13 percent from May to August but remained up 20 percent from August 2021. Manufacturing contacts said that cost pressures had stabilized or eased slightly in recent months and that their output prices were mostly unchanged from last quarter. For retailers as well as manufacturers, supply chain issues appeared to be relenting and inventories approached desired levels. Half of software and IT firms increased their prices this year, by modest to above-average margins, while other IT firms had stable prices. Most contacts expected to hold prices firm moving forward based on having made significant price hikes earlier in 2022, but a select few said that their prices still lagged relative to their costs and planned to make at least modest increases in the coming months.

Retail and Tourism

First District retail contacts reported somewhat softer sales while tourism contacts saw strong increases in activity. A clothing retailer experienced modestly slower over-the-year revenue growth compared with second quarter results. Cape Cod retailers drew weaker than expected summer revenues and attributed that outcome to too few rainy days (which push customers into the stores), but nonetheless the season's sales results were described as "good." Airline passenger traffic through Boston, both domestic and international, increased steadily in the summer months. As of August, international passenger volume had reached 85 percent of its 2019 level. Advance airline bookings for the fall showed further gains in all types of travel. Cruise ship activity increased substantially, surpassing operators' expectations. The Greater Boston hotel occupancy rate roughly doubled in the past six months, and as of August 2022 stood at nearly 80 percent of its comparable pre-pandemic level. Convention activity also accelerated, with attendance nearing 90 percent of pre-pandemic levels. Contacts in Cape Cod reported another record-setting season for its hospitality industry. Retail contacts expected a strong holiday season and tourism contacts were very optimistic for further recovery.

Manufacturing and Related Services

Revenue growth for manufacturers was mixed in the latest cycle and forecasts for 2023 turned much more pessimistic. Five of the seven firms we talked to reported higher sales in dollars, but in three of those cases sales by units were down. Two contacts said that revenue growth had slowed as their customers worked through inventories that had been accumulated earlier in the year in what was described as panic buying. Demand for semiconductor chips dropped sharply as a result of this dynamic, and upstream demand for semiconductor manufacturing equipment has "fallen off a cliff," according to one contact. Capital expenditures were steady from one year earlier, even for firms who recently made significant downward revisions to their 2023 growth forecasts. A common theme was that the tight labor market was pushing manufacturers to look for ways to automate more tasks. Most contacts remained optimistic about 2023 but two said they were explicitly planning for a recession. One contact was particularly worried about the semiconductor industry and foresaw that major new capital investments, motivated by the shortages in 2021 and 2022, would lead to a supply glut by the end of 2023.

Software and IT Services

Demand and revenue growth were stable or somewhat higher in the third quarter among First District software and IT contacts. Positive results were attributed to their offering products that emphasize cost-cutting and efficiency, as well as to the ongoing recovery of their business clients' end markets. Profits and margins were roughly stable on balance. In terms of strategy, two contacts mentioned that their services help clients to mitigate the impact of rising employment costs. For most firms, capital and technology spending was unchanged and was expected to remain flat in coming months. Contacts expected steady demand during the next quarter and expressed positive outlooks for their respective companies. However, they raised concerns about external downside risk factors such as inflation, financial market instability, labor cost pressures, and rising COVID-19 cases.

Commercial Real Estate

Commercial real estate activity slowed moderately in the First District. Contacts reported scant office leasing activity, with low rents and high vacancy rates that were nonetheless roughly stable. Work-from-home policies continued to depress daytime office occupancy well below seasonal expectations. Vacancy rates for industrial space remained historically low, in the low single digits, and rents stayed high. However, multiple contacts reported a larger number of acquisition and leasing contracts falling through. Retail leasing and acquisition markets were little changed, and retail remains a "tenant's market," according to one contact. Across property types, lessors boosted their renovation budgets to retain existing tenants, and rising borrowing costs deterred new construction. Contacts were uniformly pessimistic about the outlook for commercial real estate. Rising interest rates and recession fears were expected to continue to restrain both leasing and investment activity. Contacts expected property valuations to fall in the coming months, possibly steeply. The outlook for the office market was particularly bleak, with contacts anticipating weaker demand, negative absorption rates, and increased foreclosure rates.

Residential Real Estate

Prices began to level off in the First District's residential real estate markets in August as higher mortgage rates cooled demand. While prices were up over-the-year (to August) in all reporting markets, those increases were substantially smaller than the over-the-year increases to July, except in the case of condo markets in Maine and New Hampshire, which had stable price growth. Inventory fell year-over-year in all reporting markets except for Boston's single-family homes. Relative to the previous report, that fact translates to moderately lower inventories in all markets except Maine. Closed sales decreased over-the-year to August, albeit by somewhat smaller percentages than were reported in July. Contacts across the region remarked that buyer demand had cooled, shifting the negotiating power to buyers.


For more information about District economic conditions visit:

All Beige Book content going back to 1996 can be found at the Board of Governors website.

The Minneapolis Fed hosts the Beige Book archives by district, going back to 1970.